##### Table of Contents



2005








United States


Securities and Exchange Commission


Washington, D.C. 20549


Form 40-F




|  |                                                                                            
|- | -------------------------------------------------------------------------------------------
|o | Registration Statement pursuant to section 12 of the
    Securities Exchange Act of 1934   
| 
|þ | Annual report pursuant to section 13(a) or 15(d) of the
    Securities Exchange Act of 1934



|                                            |                                  
|------------------------------------------- | ---------------------------------
|For the fiscal year ended December 31, 2005 | Commission File Number: 001-04307

Husky Energy Inc.


(Exact name of Registrant as specified in its charter)


|                                                                                     |  |                                                                   |  |                                                                          
|------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------- |  | -------------------------------------------------------------------------
|Alberta, Canada(Province or other jurisdiction of
    incorporation or organization) |  | 1311(Primary Standard Industrial
    Classification Code Numbers) |  | Not Applicable(I.R.S. Employer Identification Number
    (if applicable))

707-8th Avenue S.W., P.O. Box 6525 Station D, Calgary,
Alberta, Canada T2P 3G7


(403) 298-6111


(Address and telephone number of Registrants principal
executive office)


CT Corporation System, 111 Eighth Avenue, New York, New York
10011


(212) 894-8400


(Name, address (including zip code) and telephone number
(including area code)


of agent for service in the United States)


Securities registered or to be registered pursuant to
Section 12(b) of the Act:


Title of Each Class:


Securities registered or to be registered pursuant to
Section 12(g) of the Act:


Title of Each Class:


Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:


40-F, 6-K


For annual reports, indicate by check mark the information
filed with this Form:


|                          |  |                                          
|------------------------- |  | -----------------------------------------
|þ Annual information form |  | þ Audited annual
    financial statements







|      |  |     
|----- |  | ----
|Yes o |  | No þ



|      |  |     
|----- |  | ----
|Yes þ |  | No o

40-F 333-117972.










---



##### Table of Contents



Principal Documents


40-F:


A.  Annual Information Form




B.  Audited Annual Financial Statements


40-F.


C.  Managements Discussion and Analysis


40-F.


Controls and Procedures


A.  Disclosure Controls and Procedures






B.  Changes in Internal Control over Financial
Reporting




Audit Committee Financial Expert


40-F) 40-F, 40-F.


ii



---



##### Table of Contents



Code of Business Conduct and Ethics






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i.  | amends any provision of its Code of Business Conduct that
    applies to the Registrants principal executive officer,
    principal financial officer, principal accounting officer or
    controller or persons performing similar functions that relates
    to any element of the code of ethics definition enumerated in
    paragraph (9)(b) of General Instruction B to
    Form 40-F, or                                
|
| | ii. | grants a waiver, including an implicit waiver, from a provision
    of its Code of Business Conduct to any of Huskys principal
    executive officer, principal financial officer, principal
    accounting officer or controller or persons performing similar
    functions that relates to any element of the code of ethics
    definition as enumerated in paragraph (9)(b) of General
    Instruction B to
    Form 40-F,



Principal Accountant Fees and Services


40-F.


Off-balance Sheet Arrangements


40-F.


Disclosure of Contractual Obligations


40-F.


UNDERTAKING AND CONSENT TO SERVICE OF PROCESS


Undertaking


40-F; 40-F


Consent to Service of Process




F-X


iii



---



##### Table of Contents



SIGNATURES


40-F






| |                  
| | -----------------
| | Husky Energy Inc.



| |     |                   
| | --- | ------------------
| | By: | /s/ John C. S. Lau

| |                                           
| | ------------------------------------------
| |                                           
| | Name: John C.S. Lau                       
| | Title: President & Chief Executive Officer



| |     |                      
| | --- | ---------------------
| | By: | /s/ James D. Girgulis

| |                                                   
| | --------------------------------------------------
| |                                                   
| | Name: James D. Girgulis                           
| | Title: Vice President, Legal & Corporate Secretary

iv



---



##### Table of Contents



Document A


Form 40-F




ANNUAL INFORMATION FORM


For the Year Ended December 31, 2005






---



##### Table of Contents





Husky Energy Inc.


Annual Information Form


For the Year Ended December 31, 2005


March 14, 2006






---



##### 










TABLE OF CONTENTS


|                                                                                                                                                        |                                                                  |                                                                               |    |    |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------------------------------------------- | -- | -- | -- | 
|                                                                                                                                                        |                                                                  | Page                                                                          |   
|                                                                                                                                                        |                                                                  |                                                                               |   
|Exchange Rate Information                                                                                                                               |                                                                  |                                                                               | 2  |   
|Disclosure Exemption Under National
    Instrument 51-101                                                                                               |                                                                  |                                                                               | 2  |   
|Corporate Structure                                                                                                                                     |                                                                  |                                                                               |    |   
|                                                                                                                                                        | Husky Energy Inc.                                                |                                                                               |    | 3  |   
|                                                                                                                                                        | Intercorporate Relationships                                     |                                                                               |    | 4  |   
|General Development of Husky                                                                                                                            |                                                                  |                                                                               |    |   
|                                                                                                                                                        | Three Year History of Husky                                      |                                                                               |    | 4  |   
|                                                                                                                                                        | Business Environment Trends                                      |                                                                               |    | 5  |   
|Description of Huskys
    Business                                                                                                                     |                                                                  |                                                                               |    |   
|                                                                                                                                                        | General                                                          |                                                                               |    | 6  |   
|                                                                                                                                                        | Social and Environmental Policy                                  |                                                                               |    | 7  |   
|                                                                                                                                                        | Risk Factors                                                     |                                                                               |    | 7  |   
|                                                                                                                                                        | Upstream Operations  Disclosures
    for Oil and Gas Activities |                                                                               |    | 9  |   
|                                                                                                                                                        |                                                                  | Disclosure about Oil and Gas Producing
    Activities  FAS 69                |    |    | 24 | 
|                                                                                                                                                        |                                                                  | Independent Engineers Audit
    Opinion                                      |    |    | 30 | 
|                                                                                                                                                        |                                                                  | Report on Reserves Data by Qualified
    Reserves Evaluator                   |    |    | 31 | 
|                                                                                                                                                        |                                                                  | Report of Management and Directors on
    Reserves Data and Other Information |    |    | 32 | 
|                                                                                                                                                        |                                                                  | Description of Major Properties and
    Facilities                            |    |    | 34 | 
|                                                                                                                                                        | Distribution of Oil and Gas Production                           |                                                                               |    | 49 |   
|                                                                                                                                                        | Midstream Operations                                             |                                                                               |    | 50 |   
|                                                                                                                                                        | Refined Products                                                 |                                                                               |    | 53 |   
|                                                                                                                                                        | Human Resources                                                  |                                                                               |    | 58 |   
|Dividends                                                                                                                                               |                                                                  |                                                                               | 58 |   
|Description of Capital Structure                                                                                                                        |                                                                  |                                                                               | 58 |   
|Market for Securities                                                                                                                                   |                                                                  |                                                                               | 60 |   
|Directors and Officers                                                                                                                                  |                                                                  |                                                                               | 61 |   
|Audit Committee                                                                                                                                         |                                                                  |                                                                               | 66 |   
|Legal Proceedings                                                                                                                                       |                                                                  |                                                                               | 67 |   
|Interest of Management and Others in
    Material Transactions                                                                                          |                                                                  |                                                                               | 67 |   
|Transfer Agent and Registrars                                                                                                                           |                                                                  |                                                                               | 67 |   
|Interests of Experts                                                                                                                                    |                                                                  |                                                                               | 67 |   
|Additional Information                                                                                                                                  |                                                                  |                                                                               | 67 |   
|Abbreviations and Glossary of
    Terms                                                                                                                 |                                                                  |                                                                               | 68 |   
|Special Note Regarding
    Forward-looking Statements                                                                                                   |                                                                  |                                                                               | 73 |   
|Schedule A Audit Committee
    Charter                                                                                                                |                                                                  |                                                                               | 75 |   
|Consent of KPMG LLP                                                                                                                                    
|Consent of McDaniel and Associates Consultants Ltd.                                                                                                    
|Certification of CEO and Acting CFO pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934                                        
|Certification of CEO and Acting CFO pursuant to Rule 13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).





Boe or mcfge may be misleading, particularly if used in
isolation. A boe conversion ratio of six mcf to one bbl is based
on an energy equivalency conversion method primarily applicable
at the burner tip and does not represent a value equivalency at
the wellhead.


Refer to page 73 Special Note Regarding
Forward-Looking Statements.


1



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EXCHANGE RATE INFORMATION




|         |  |                        |       |  |      |  |       |      |  |  |       | 
|-------- |  | ---------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|         |  | Year ended December 31 |      
|         |  |                        |      
|         |  | 2005                   |       |  | 2004 |  |       | 2003 | 
|         |  |                        |       |  |      |  |       |      | 
|Year end |  |                        | 1.166 |  |      |  | 1.203 |      |  |  | 1.292 | 
|Low      |  |                        | 1.151 |  |      |  | 1.178 |      |  |  | 1.292 | 
|High     |  |                        | 1.210 |  |      |  | 1.397 |      |  |  | 1.575 | 
|Average  |  |                        | 1.211 |  |      |  | 1.302 |      |  |  | 1.386 | 








|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | The exchange rates were as quoted by the Federal Reserve Bank of
    New York for the noon buying rate.       
|   
|(2) | The high, low and average rates were either quoted or calculated
    as of the last day of the relevant month.




DISCLOSURE OF EXEMPTION UNDER NATIONAL
INSTRUMENT 51-101


51-101 51-101). 51-101, 51-101.




| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The FASB Statement No. 69 Disclosure about Oil and
    Gas Producing Activities  an amendment of FASB
    Statements No.s 19, 25, 33 and 39
    (FAS 69);              
|
| |  | FASB Current Text Section Oi5, Oil and Gas Producing
    Activities paragraph .103, .106, .107, .108, .112, .160
    through .167, .174 through .184 and .401 through .408;
|
| |  | SEC Industry Guide 2;                                                                                                                                                        
|
| |  | SEC Item 102 of
    regulation S-K
    (17 CFR 229.102);                                                                                                                     
|
| |  | SEC Item 302(b) of
    Regulation S-K
    (17 CFR 229.302(b)); and                                                                                                           
|
| |  | The definitions and disclosures required by SEC
    Regulation S-X
    (CFR 210.4-10).                                                                                       

51-101.


51-101 51-101


51-101 51-101 51-315 51-101


2



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CORPORATE STRUCTURE





Husky Energy Inc.


Business Corporations Act Business Corporations Act Business
Corporations Act






3



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Intercorporate Relationships




|                                                             |  |                       
|------------------------------------------------------------ |  | ----------------------
|Name                                                         |  | Jurisdiction          
|                                                             |  |                       
|Subsidiaries of Husky Energy Inc.                            |  |                       
|Husky Oil Operations Limited                                 |  | Nova Scotia           
|Subsidiaries of Husky Oil Operations Limited                 |  |                       
|Husky Oil Limited                                            |  | Nova Scotia           
|Husky Energy Marketing Inc.                                  |  | Alberta               
|Husky (U.S.A.) Inc.                                          |  | Delaware              
|HOI Resources Co.                                            |  | Nova Scotia           
|Husky Energy International Sulphur Corporation               |  | Alberta               
|Canterra Resources Canada Ltd. (formerly 147212 Canada Ltd.) |  | Canada                
|Subsidiaries of Husky (U.S.A.) Inc.                          |  |                       
|Husky Gas Marketing Inc.                                     |  | Delaware              
|Subsidiaries of HOI Resources Co.                            |  |                       
|Husky Energy International Corporation                       |  | British Columbia      
|Subsidiaries of Husky Energy International Corporation       |  |                       
|Husky Oil China Ltd.                                         |  | Alberta               
|Husky Oil (Madura) Ltd.                                      |  | British Virgin Islands
|Husky Oil Overseas Ltd.                                      |  | Alberta               




GENERAL DEVELOPMENT OF HUSKY





Three Year History
















4



---



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Subsequent Event






Events Expected to Occur During 2006









Business Environment Trends


(1) (1)







|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Canadian Crude Oil Production and Supply forecast,
    July 2004, Canadian Association of Petroleum Producers Oil
    Sands Technology Roadmap, January 30, 2004, Alberta
    Chamber of Resources.

5



---



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DESCRIPTION OF HUSKYS BUSINESS





General




Upstream Operations




Reserves
and Land Position




Properties














6



---



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Midstream Operations




Refined Products







Social and Environmental Policy







Risk Factors




Adequacy of crude oil and natural gas prices










Demand for Huskys other products and services and
the cost of required inputs




7



---



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Huskys ability to replace reserves




Competition




Huskys operations are susceptible to business
interruption






Foreign exchange risk




Environmental risks






8



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##### Table of Contents







Uncertainty of oil and gas proved reserves
estimates









Upstream Operations  Disclosures for Oil and Gas
Activities




Production


|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |     | 
|--------------------- | ----------------------- | ----- |  | ------- | ------ |  | ---- | ----- |  |  | ------ | ---- |  | ----- |  | ----- | ----- |  |  | ---- |  |  |  | --- | 
|                      |                         | 2005  | 
|                      |                         |       | 
|                      |                         |       |  | Western |        |  | East |       |  | 
|                      |                         | Total |  |         | Canada |  |      | Coast |  |  | Canada |      |  | China |  |       | Libya | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|Crude Oil(mbbls/day)  |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |    
|                      | Light crude oil and NGL |       |  | 64.6    |        |  |      | 31.3  |  |  |        | 17.2 |  |       |  | 48.5  |       |  |  | 16.0 |  |  |  | 0.1 | 
|                      | Medium crude oil        |       |  | 31.1    |        |  |      | 31.1  |  |  |        |     |  |       |  | 31.1  |       |  |  |     |  |  |  |    | 
|                      | Heavy crude oil         |       |  | 106.0   |        |  |      | 106.0 |  |  |        |     |  |       |  | 106.0 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Total gross             |       |  | 201.7   |        |  |      | 168.4 |  |  |        | 17.2 |  |       |  | 185.6 |       |  |  | 16.0 |  |  |  | 0.1 | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Total net               |       |  | 175.7   |        |  |      | 146.0 |  |  |        | 15.1 |  |       |  | 161.1 |       |  |  | 14.5 |  |  |  | 0.1 | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|Natural Gas(mmcf/day) |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |    
|                      | Gross                   |       |  | 680.0   |        |  |      | 680.0 |  |  |        |     |  |       |  | 680.0 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Net                     |       |  | 488.5   |        |  |      | 488.5 |  |  |        |     |  |       |  | 488.5 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 

9



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##### Table of Contents



Production (continued)


|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |     | 
|--------------------- | ----------------------- | ----- |  | ------- | ------ |  | ---- | ----- |  |  | ------ | ---- |  | ----- |  | ----- | ----- |  |  | ---- |  |  |  | --- | 
|                      |                         | 2004  | 
|                      |                         |       | 
|                      |                         |       |  | Western |        |  | East |       |  | 
|                      |                         | Total |  |         | Canada |  |      | Coast |  |  | Canada |      |  | China |  |       | Libya | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|Crude Oil(mbbls/day)  |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |    
|                      | Light crude oil and NGL |       |  | 66.2    |        |  |      | 32.7  |  |  |        | 13.7 |  |       |  | 46.4  |       |  |  | 19.7 |  |  |  | 0.1 | 
|                      | Medium crude oil        |       |  | 35.0    |        |  |      | 35.0  |  |  |        |     |  |       |  | 35.0  |       |  |  |     |  |  |  |    | 
|                      | Heavy crude oil         |       |  | 108.9   |        |  |      | 108.9 |  |  |        |     |  |       |  | 108.9 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Total gross             |       |  | 210.1   |        |  |      | 176.6 |  |  |        | 13.7 |  |       |  | 190.3 |       |  |  | 19.7 |  |  |  | 0.1 | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Total net               |       |  | 183.9   |        |  |      | 153.0 |  |  |        | 13.2 |  |       |  | 166.2 |       |  |  | 17.6 |  |  |  | 0.1 | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|Natural Gas(mmcf/day) |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |    
|                      | Gross                   |       |  | 689.2   |        |  |      | 689.2 |  |  |        |     |  |       |  | 689.2 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Net                     |       |  | 524.0   |        |  |      | 524.0 |  |  |        |     |  |       |  | 524.0 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 

|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |     | 
|--------------------- | ----------------------- | ----- |  | ------- | ------ |  | ---- | ----- |  |  | ------ | ---- |  | ----- |  | ----- | ----- |  |  | ---- |  |  |  | --- | 
|                      |                         | 2003  | 
|                      |                         |       | 
|                      |                         |       |  | Western |        |  | East |       |  | 
|                      |                         | Total |  |         | Canada |  |      | Coast |  |  | Canada |      |  | China |  |       | Libya | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|Crude Oil(mbbls/day)  |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |    
|                      | Light crude oil and NGL |       |  | 71.6    |        |  |      | 32.2  |  |  |        | 16.8 |  |       |  | 49.0  |       |  |  | 22.4 |  |  |  | 0.2 | 
|                      | Medium crude oil        |       |  | 39.2    |        |  |      | 39.2  |  |  |        |     |  |       |  | 39.2  |       |  |  |     |  |  |  |    | 
|                      | Heavy crude oil         |       |  | 99.9    |        |  |      | 99.9  |  |  |        |     |  |       |  | 99.9  |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Total gross             |       |  | 210.7   |        |  |      | 171.3 |  |  |        | 16.8 |  |       |  | 188.1 |       |  |  | 22.4 |  |  |  | 0.2 | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Total net               |       |  | 186.8   |        |  |      | 149.5 |  |  |        | 16.7 |  |       |  | 166.2 |       |  |  | 20.4 |  |  |  | 0.2 | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|Natural Gas(mmcf/day) |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       |  |  |      |  |  |  |    
|                      | Gross                   |       |  | 610.6   |        |  |      | 610.6 |  |  |        |     |  |       |  | 610.6 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 
|                      | Net                     |       |  | 473.7   |        |  |      | 473.7 |  |  |        |     |  |       |  | 473.7 |       |  |  |     |  |  |  |    | 
|                      |                         |       |  |         |        |  |      |       |  |  |        |      |  |       |  |       |       | 








|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross volumes are Huskys lessor royalty, overriding
    royalty and working interest share of production before
    deduction of royalties. Net volumes are Huskys gross
    volumes, less royalties.

Revenue


|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |   | 
|----------- | -------------------------- | ------------ |  | ------- | ------ |  | ---- | ----- |  |  | ------ | --- |  | ----- |  | ----- | ----- |  |  | --- |  |  |  | - | 
|            |                            | 2005         | 
|            |                            |              | 
|            |                            |              |  | Western |        |  | East |       |  | 
|            |                            | Total        |  |         | Canada |  |      | Coast |  |  | Canada |     |  | China |  |       | Libya | 
|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            |                            | ($ millions) | 
|Crude Oil   |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |  
|            | Light crude oil and NGL    |              |  | 1,450   |        |  |      | 686   |  |  |        | 392 |  |       |  | 1,078 |       |  |  | 369 |  |  |  | 3 | 
|            | Medium crude oil           |              |  | 493     |        |  |      | 493   |  |  |        |    |  |       |  | 493   |       |  |  |    |  |  |  |  | 
|            | Heavy crude oil            |              |  | 1,203   |        |  |      | 1,203 |  |  |        |    |  |       |  | 1,203 |       |  |  |    |  |  |  |  | 
|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Total gross                |              |  | 3,146   |        |  |      | 2,382 |  |  |        | 392 |  |       |  | 2,774 |       |  |  | 369 |  |  |  | 3 | 
|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Total net                  |              |  | 2,713   |        |  |      | 2,020 |  |  |        | 355 |  |       |  | 2,375 |       |  |  | 335 |  |  |  | 3 | 
|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|Natural Gas |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |  
|            | Gross                      |              |  | 2,000   |        |  |      | 2,000 |  |  |        |    |  |       |  | 2,000 |       |  |  |    |  |  |  |  | 
|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Net                        |              |  | 1,594   |        |  |      | 1,594 |  |  |        |    |  |       |  | 1,594 |       |  |  |    |  |  |  |  | 
|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Processing/ Transportation |              |  | 61      |        |  |      | 58    |  |  |        | 3   |  |       |  | 61    |       |  |  |    |  |  |  |  | 
|            |                            |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 

10



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##### Table of Contents



Revenue (continued)


|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |   | 
|----------- | ----------------------- | ------------ |  | ------- | ------ |  | ---- | ----- |  |  | ------ | --- |  | ----- |  | ----- | ----- |  |  | --- |  |  |  | - | 
|            |                         | 2004         | 
|            |                         |              | 
|            |                         |              |  | Western |        |  | East |       |  | 
|            |                         | Total        |  |         | Canada |  |      | Coast |  |  | Canada |     |  | China |  |       | Libya | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            |                         | ($ millions) | 
|Crude Oil   |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |  
|            | Light crude oil and NGL |              |  | 967     |        |  |      | 474   |  |  |        | 148 |  |       |  | 622   |       |  |  | 343 |  |  |  | 2 | 
|            | Medium crude oil        |              |  | 462     |        |  |      | 462   |  |  |        |    |  |       |  | 462   |       |  |  |    |  |  |  |  | 
|            | Heavy crude oil         |              |  | 757     |        |  |      | 757   |  |  |        |    |  |       |  | 757   |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Total gross             |              |  | 2,186   |        |  |      | 1,693 |  |  |        | 148 |  |       |  | 1,841 |       |  |  | 343 |  |  |  | 2 | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Total net               |              |  | 1,824   |        |  |      | 1,375 |  |  |        | 139 |  |       |  | 1,514 |       |  |  | 308 |  |  |  | 2 | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|Natural Gas |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |  
|            | Gross                   |              |  | 1,596   |        |  |      | 1,596 |  |  |        |    |  |       |  | 1,596 |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Net                     |              |  | 1,248   |        |  |      | 1,248 |  |  |        |    |  |       |  | 1,248 |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Processing              |              |  | 48      |        |  |      | 48    |  |  |        |    |  |       |  | 48    |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 

|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |   | 
|----------- | ----------------------- | ------------ |  | ------- | ------ |  | ---- | ----- |  |  | ------ | --- |  | ----- |  | ----- | ----- |  |  | --- |  |  |  | - | 
|            |                         | 2003         | 
|            |                         |              | 
|            |                         |              |  | Western |        |  | East |       |  | 
|            |                         | Total        |  |         | Canada |  |      | Coast |  |  | Canada |     |  | China |  |       | Libya | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            |                         | ($ millions) | 
|Crude Oil   |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |  
|            | Light crude oil and NGL |              |  | 879     |        |  |      | 300   |  |  |        | 238 |  |       |  | 538   |       |  |  | 338 |  |  |  | 3 | 
|            | Medium crude oil        |              |  | 556     |        |  |      | 556   |  |  |        |    |  |       |  | 556   |       |  |  |    |  |  |  |  | 
|            | Heavy crude oil         |              |  | 943     |        |  |      | 943   |  |  |        |    |  |       |  | 943   |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Total gross             |              |  | 2,378   |        |  |      | 1,799 |  |  |        | 238 |  |       |  | 2,037 |       |  |  | 338 |  |  |  | 3 | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Total net               |              |  | 2,082   |        |  |      | 1,539 |  |  |        | 233 |  |       |  | 1,772 |       |  |  | 307 |  |  |  | 3 | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|Natural Gas |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       |  |  |     |  |  |  |  
|            | Gross                   |              |  | 1,346   |        |  |      | 1,346 |  |  |        |    |  |       |  | 1,346 |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Net                     |              |  | 1,058   |        |  |      | 1,058 |  |  |        |    |  |       |  | 1,058 |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 
|            | Processing              |              |  | 46      |        |  |      | 46    |  |  |        |    |  |       |  | 46    |       |  |  |    |  |  |  |  | 
|            |                         |              |  |         |        |  |      |       |  |  |        |     |  |       |  |       |       | 

Sales Prices


|                   |                         |       |      |         |        |  |      |       |  |  |        |       |  |       |      |       |       |  |   |       |  |  |   |       | 
|------------------ | ----------------------- | ----- | ---- | ------- | ------ |  | ---- | ----- |  |  | ------ | ----- |  | ----- | ---- | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                   |                         | 2005  |     
|                   |                         |       |     
|                   |                         |       |      | Western |        |  | East |       |  | 
|                   |                         | Total |      |         | Canada |  |      | Coast |  |  | Canada |       |  | China |      |       | Libya | 
|                   |                         |       |      |         |        |  |      |       |  |  |        |       |  |       |      |       |       | 
|Crude Oil($/bbl)   |                         |       |      |         |        |  |      |       |  |  |        |       |  |       |      |       |       |  |   |       |  |  |   |      
|                   | Light crude oil and NGL |       |      | 61.56   |        |  |      | 60.15 |  |  |        | 62.60 |  |       |      | 61.02 |       |  |   | 63.15 |  |  |   | 69.23 | 
|                   | Medium crude oil        |       |      | 43.44   |        |  |      | 43.44 |  |  |        |      |  |       |      | 43.44 |       |  |   |      |  |  |   |      | 
|                   | Heavy crude oil         |       |      | 31.09   |        |  |      | 31.09 |  |  |        |      |  |       |      | 31.09 |       |  |   |      |  |  |   |      | 
|                   | Total crude oil and NGL |       |      | 42.75   |        |  |      | 38.77 |  |  |        | 62.60 |  |       |      | 40.97 |       |  |   | 63.15 |  |  |   | 69.23 | 
|Natural Gas($/mcf) |                         |       | 7.96 |         |        |  | 7.96 |       |  |  |       |       |  |       | 7.96 |       |       |  |  |       |  |  |  |      

11



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##### Table of Contents



Sales Prices (continued)


|                   |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       |  |  |       |  |  |  |       | 
|------------------ | ---------------------------------------- | ----- |  | ------- | ------ |  | ---- | ----- |  |  | ------ | ----- |  | ----- |  | ----- | ----- |  |  | ----- |  |  |  | ----- | 
|                   |                                          | 2004  | 
|                   |                                          |       | 
|                   |                                          |       |  | Western |        |  | East |       |  | 
|                   |                                          | Total |  |         | Canada |  |      | Coast |  |  | Canada |       |  | China |  |       | Libya | 
|                   |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       | 
|Crude Oil($/bbl)   |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       |  |  |       |  |  |  |      
|                   | Light crude oil and NGL                  |       |  | 48.34   |        |  |      | 49.35 |  |  |        | 47.87 |  |       |  | 49.64 |       |  |  | 47.66 |  |  |  | 57.88 | 
|                   | Medium crude oil                         |       |  | 36.13   |        |  |      | 36.13 |  |  |        |      |  |       |  | 36.13 |       |  |  |      |  |  |  |      | 
|                   | Heavy crude oil                          |       |  | 28.66   |        |  |      | 28.66 |  |  |        |      |  |       |  | 28.66 |       |  |  |      |  |  |  |      | 
|                   | Total crude oil and NGL (before hedging) |       |  | 36.07   |        |  |      | 33.85 |  |  |        | 47.87 |  |       |  | 34.90 |       |  |  | 47.66 |  |  |  | 57.88 | 
|                   | Total crude oil and NGL (after hedging)  |       |  | 28.43   |        |  |      | 26.19 |  |  |        | 29.45 |  |       |  | 26.42 |       |  |  | 47.66 |  |  |  | 57.88 | 
|Natural Gas($/mcf) |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       |  |  |       |  |  |  |      
|                   | Before hedging                           |       |  | 6.25    |        |  |      | 6.25  |  |  |        |      |  |       |  | 6.25  |       |  |  |      |  |  |  |      | 
|                   | After hedging                            |       |  | 6.24    |        |  |      | 6.24  |  |  |        |      |  |       |  | 6.24  |       |  |  |      |  |  |  |      | 

|                   |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       |  |  |       |  |  |  |       | 
|------------------ | ---------------------------------------- | ----- |  | ------- | ------ |  | ---- | ----- |  |  | ------ | ----- |  | ----- |  | ----- | ----- |  |  | ----- |  |  |  | ----- | 
|                   |                                          | 2003  | 
|                   |                                          |       | 
|                   |                                          |       |  | Western |        |  | East |       |  | 
|                   |                                          | Total |  |         | Canada |  |      | Coast |  |  | Canada |       |  | China |  |       | Libya | 
|                   |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       | 
|Crude Oil($/bbl)   |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       |  |  |       |  |  |  |      
|                   | Light crude oil and NGL                  |       |  | 39.53   |        |  |      | 38.28 |  |  |        | 38.91 |  |       |  | 38.49 |       |  |  | 41.45 |  |  |  | 40.44 | 
|                   | Medium crude oil                         |       |  | 31.42   |        |  |      | 31.42 |  |  |        |      |  |       |  | 31.42 |       |  |  |      |  |  |  |      | 
|                   | Heavy crude oil                          |       |  | 25.87   |        |  |      | 25.87 |  |  |        |      |  |       |  | 25.87 |       |  |  |      |  |  |  |      | 
|                   | Total crude oil and NGL (before hedging) |       |  | 31.54   |        |  |      | 29.48 |  |  |        | 38.91 |  |       |  | 30.32 |       |  |  | 41.45 |  |  |  | 40.44 | 
|                   | Total crude oil and NGL (after hedging)  |       |  | 30.93   |        |  |      | 28.96 |  |  |        | 36.96 |  |       |  | 29.67 |       |  |  | 41.45 |  |  |  | 40.44 | 
|Natural Gas($/mcf) |                                          |       |  |         |        |  |      |       |  |  |        |       |  |       |  |       |       |  |  |       |  |  |  |      
|                   | Before hedging                           |       |  | 5.86    |        |  |      | 5.86  |  |  |        |      |  |       |  | 5.86  |       |  |  |      |  |  |  |      | 
|                   | After hedging                            |       |  | 5.94    |        |  |      | 5.94  |  |  |        |      |  |       |  | 5.94  |       |  |  |      |  |  |  |      | 

Capital Expenditures


|                     |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       |  |  |   |  |  |  |   | 
|-------------------- |  | ------------ | ----- | ------- | ------ |  | ----------- | -------- |  |  | ------ |  |  | ----- | ----- |  | --------- |  | -- | ----- |  |  | - |  |  |  | - | 
|                     |  | 2005         |      
|                     |  |              |      
|                     |  |              |       | Western |        |  | East Coast/ |          |  | 
|                     |  | Total        |       |         | Canada |  |             | Frontier |  |  | Canada |  |  | China |       |  | Indonesia |  |    | Libya | 
|                     |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 
|                     |  | ($ millions) |      
|Property acquisition |  |              | 133   |         |        |  | 133         |          |  |  |       |  |  |       | 133   |  |           |  |   |       |  |  |  |  |  |  |  | 
|Exploration          |  |              | 445   |         |        |  | 324         |          |  |  | 66     |  |  |       | 390   |  |           |  | 55 |       |  |  |  |  |  |  |  | 
|Development          |  |              | 2,152 |         |        |  | 1,550       |          |  |  | 579    |  |  |       | 2,129 |  |           |  | 14 |       |  |  | 8 |  |  |  | 1 | 
|                     |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 
|                     |  |              | 2,730 |         |        |  | 2,007       |          |  |  | 645    |  |  |       | 2,652 |  |           |  | 69 |       |  |  | 8 |  |  |  | 1 | 
|                     |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 

|                            |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       |  |  |    |  |  |  |   | 
|--------------------------- |  | ------------ | ----- | ------- | ------ |  | ----------- | -------- |  |  | ------ |  |  | ----- | ----- |  | --------- |  | -- | ----- |  |  | -- |  |  |  | - | 
|                            |  | 2004         |      
|                            |  |              |      
|                            |  |              |       | Western |        |  | East Coast/ |          |  | 
|                            |  | Total        |       |         | Canada |  |             | Frontier |  |  | Canada |  |  | China |       |  | Indonesia |  |    | Libya | 
|                            |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 
|                            |  | ($ millions) |      
|Property
    acquisition(1) |  |              | 116   |         |        |  | 54          |          |  |  |       |  |  |       | 54    |  |           |  |   |       |  |  | 62 |  |  |  |  | 
|Exploration                 |  |              | 313   |         |        |  | 271         |          |  |  | 24     |  |  |       | 295   |  |           |  | 18 |       |  |  |   |  |  |  |  | 
|Development                 |  |              | 1,728 |         |        |  | 1,208       |          |  |  | 515    |  |  |       | 1,723 |  |           |  | 5  |       |  |  |   |  |  |  |  | 
|                            |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 
|                            |  |              | 2,157 |         |        |  | 1,533       |          |  |  | 539    |  |  |       | 2,072 |  |           |  | 23 |       |  |  | 62 |  |  |  |  | 
|                            |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 

12



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##### Table of Contents



Capital Expenditures (continued)


|                             |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       |  |  |   |  |  |  |   | 
|---------------------------- |  | ------------ | ----- | ------- | ------ |  | ----------- | -------- |  |  | ------ |  |  | ----- | ----- |  | --------- |  | -- | ----- |  |  | - |  |  |  | - | 
|                             |  | 2003         |      
|                             |  |              |      
|                             |  |              |       | Western |        |  | East Coast/ |          |  | 
|                             |  | Total        |       |         | Canada |  |             | Frontier |  |  | Canada |  |  | China |       |  | Indonesia |  |    | Libya | 
|                             |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 
|                             |  | ($ millions) |      
|Property
    acquisitions(2) |  |              | 76    |         |        |  | 76          |          |  |  |       |  |  |       | 76    |  |           |  |   |       |  |  |  |  |  |  |  | 
|Exploration                  |  |              | 324   |         |        |  | 274         |          |  |  | 24     |  |  |       | 298   |  |           |  | 26 |       |  |  |  |  |  |  |  | 
|Development                  |  |              | 1,378 |         |        |  | 845         |          |  |  | 533    |  |  |       | 1,378 |  |           |  |   |       |  |  |  |  |  |  |  | 
|                             |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 
|                             |  |              | 1,778 |         |        |  | 1,195       |          |  |  | 557    |  |  |       | 1,752 |  |           |  | 26 |       |  |  |  |  |  |  |  | 
|                             |  |              |       |         |        |  |             |          |  |  |        |  |  |       |       |  |           |  |    |       | 








|    |                                                             
|--- | ------------------------------------------------------------
|(1) | Does not include the acquisition of Temple Exploration Inc. 
|   
|(2) | Does not include the acquisition of Marathon Canada Limited.

Oil and Gas Netbacks




|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |       | 
|---------------------- | ---------------- | --------------- |  | ------- | ------ |  | ---- | ----- | ----- |  | ------ | ----- | ----- | ----- |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                       |                  | 2005            | 
|                       |                  |                 | 
|                       |                  |                 |  | Western |        |  | East |       |       | 
|                       |                  | Total           |  |         | Canada |  |      | Coast |       |  | Canada |       |       | China |  |       | Libya | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Crude Oil($/bbl)       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Light crude oil  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                  | Sales revenue   |  |         | 61.86  |  |      |       | 60.74 |  |        |       | 62.60 |       |  |       | 61.41 |  |  |       | 63.15 |  |  |       | 69.23 | 
|                       |                  | Royalties       |  |         | 7.22   |  |      |       | 8.66  |  |        |       | 5.91  |       |  |       | 7.67  |  |  |       | 5.93  |  |  |       |      | 
|                       |                  | Operating costs |  |         | 6.88   |  |      |       | 9.86  |  |        |       | 5.14  |       |  |       | 8.16  |  |  |       | 2.92  |  |  |       | 22.73 | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                  | Netback         |  |         | 47.76  |  |      |       | 42.22 |  |        |       | 51.55 |       |  |       | 45.58 |  |  |       | 54.30 |  |  |       | 46.50 | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Medium crude oil |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                  | Sales revenue   |  |         | 43.67  |  |      |       | 43.67 |  |        |       |      |       |  |       | 43.67 |  |  |       |      |  |  |       |      | 
|                       |                  | Royalties       |  |         | 7.77   |  |      |       | 7.77  |  |        |       |      |       |  |       | 7.77  |  |  |       |      |  |  |       |      | 
|                       |                  | Operating costs |  |         | 10.97  |  |      |       | 10.97 |  |        |       |      |       |  |       | 10.97 |  |  |       |      |  |  |       |      | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                  | Net back        |  |         | 24.93  |  |      |       | 24.93 |  |        |       |      |       |  |       | 24.93 |  |  |       |      |  |  |       |      | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Heavy crude oil  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                  | Sales revenue   |  |         | 31.22  |  |      |       | 31.22 |  |        |       |      |       |  |       | 31.22 |  |  |       |      |  |  |       |      | 
|                       |                  | Royalties       |  |         | 3.75   |  |      |       | 3.75  |  |        |       |      |       |  |       | 3.75  |  |  |       |      |  |  |       |      | 
|                       |                  | Operating costs |  |         | 9.90   |  |      |       | 9.90  |  |        |       |      |       |  |       | 9.90  |  |  |       |      |  |  |       |      | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                  | Netback         |  |         | 17.57  |  |      |       | 17.57 |  |        |       |      |       |  |       | 17.57 |  |  |       |      |  |  |       |      | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Total crude oil  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                  | Sales revenue   |  |         | 42.83  |  |      |       | 38.91 |  |        |       | 62.60 |       |  |       | 41.08 |  |  |       | 63.15 |  |  |       | 69.23 | 
|                       |                  | Royalties       |  |         | 5.49   |  |      |       | 5.41  |  |        |       | 5.91  |       |  |       | 5.45  |  |  |       | 5.93  |  |  |       |      | 
|                       |                  | Operating costs |  |         | 9.13   |  |      |       | 10.10 |  |        |       | 5.14  |       |  |       | 9.65  |  |  |       | 2.92  |  |  |       | 22.73 | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                  | Netback         |  |         | 28.21  |  |      |       | 23.40 |  |        |       | 51.55 |       |  |       | 25.98 |  |  |       | 54.30 |  |  |       | 46.50 | 
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Natural Gas($/mcf)     |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Sales revenue    |                 |  | 8.02    |        |  |      | 8.02  |       |  |        |      |       |       |  | 8.02  |       |  |  |      |       |  |  |      |      
|                       | Royalties        |                 |  | 1.76    |        |  |      | 1.76  |       |  |        |      |       |       |  | 1.76  |       |  |  |      |       |  |  |      |      
|                       | Operating costs  |                 |  | 1.04    |        |  |      | 1.04  |       |  |        |      |       |       |  | 1.04  |       |  |  |      |       |  |  |      |      
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback          |                 |  | 5.22    |        |  |      | 5.22  |       |  |        |      |       |       |  | 5.22  |       |  |  |      |       |  |  |      |      
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Equivalent Unit($/boe) |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Sales revenue    |                 |  | 44.56   |        |  |      | 42.53 |       |  |        | 62.60 |       |       |  | 43.69 |       |  |  | 63.15 |       |  |  | 69.23 |      
|                       | Royalties        |                 |  | 7.29    |        |  |      | 7.45  |       |  |        | 5.91  |       |       |  | 7.36  |       |  |  | 5.93  |       |  |  |      |      
|                       | Operating costs  |                 |  | 8.12    |        |  |      | 8.59  |       |  |        | 5.14  |       |       |  | 8.39  |       |  |  | 2.92  |       |  |  | 22.73 |      
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback          |                 |  | 29.15   |        |  |      | 26.49 |       |  |        | 51.55 |       |       |  | 27.94 |       |  |  | 54.30 |       |  |  | 46.50 |      
|                       |                  |                 |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 

13



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##### Table of Contents



Oil and Gas Netbacks (continued)


|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |       | 
|---------------------- | ---------------------- | ---------------------- |  | ------- | ------ |  | ---- | ----- | ----- |  | ------ | ----- | ----- | ----- |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                       |                        | 2004                   | 
|                       |                        |                        | 
|                       |                        |                        |  | Western |        |  | East |       |       | 
|                       |                        | Total                  |  |         | Canada |  |      | Coast |       |  | Canada |       |       | China |  |       | Libya | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Crude Oil($/bbl)       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Light crude oil        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 46.95  |  |      |       | 46.12 |  |        |       | 47.87 |       |  |       | 46.63 |  |  |       | 47.66 |  |  |       | 57.88 | 
|                       |                        | Royalties              |  |         | 5.71   |  |      |       | 7.76  |  |        |       | 1.80  |       |  |       | 6.03  |  |  |       | 4.91  |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 5.82   |  |      |       | 8.94  |  |        |       | 3.28  |       |  |       | 7.29  |  |  |       | 2.16  |  |  |       | 16.47 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 35.42  |  |      |       | 29.42 |  |        |       | 42.79 |       |  |       | 33.31 |  |  |       | 40.59 |  |  |       | 41.41 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Medium crude oil       |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 36.20  |  |      |       | 36.20 |  |        |       |      |       |  |       | 36.20 |  |  |       |      |  |  |       |      | 
|                       |                        | Royalties              |  |         | 6.10   |  |      |       | 6.10  |  |        |       |      |       |  |       | 6.10  |  |  |       |      |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 10.07  |  |      |       | 10.07 |  |        |       |      |       |  |       | 10.07 |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 20.03  |  |      |       | 20.03 |  |        |       |      |       |  |       | 20.03 |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Heavy crude oil        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 28.73  |  |      |       | 28.73 |  |        |       |      |       |  |       | 28.73 |  |  |       |      |  |  |       |      | 
|                       |                        | Royalties              |  |         | 3.38   |  |      |       | 3.38  |  |        |       |      |       |  |       | 3.38  |  |  |       |      |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 9.33   |  |      |       | 9.33  |  |        |       |      |       |  |       | 9.33  |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 16.02  |  |      |       | 16.02 |  |        |       |      |       |  |       | 16.02 |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Total crude oil        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 35.72  |  |      |       | 33.48 |  |        |       | 47.87 |       |  |       | 34.50 |  |  |       | 47.66 |  |  |       | 57.88 | 
|                       |                        | Royalties              |  |         | 4.58   |  |      |       | 4.75  |  |        |       | 1.80  |       |  |       | 4.54  |  |  |       | 4.91  |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 8.36   |  |      |       | 9.41  |  |        |       | 3.28  |       |  |       | 8.97  |  |  |       | 2.16  |  |  |       | 16.47 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 22.78  |  |      |       | 19.32 |  |        |       | 42.79 |       |  |       | 20.99 |  |  |       | 40.59 |  |  |       | 41.41 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback after hedging  |  |         | 15.64  |  |      |       | 12.25 |  |        |       | 24.37 |       |  |       | 13.11 |  |  |       | 40.59 |  |  |       | 41.41 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Natural Gas($/mcf)     |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Sales revenue          |                        |  | 6.25    |        |  |      | 6.25  |       |  |        |      |       |       |  | 6.25  |       |  |  |      |       |  |  |      |      
|                       | Royalties              |                        |  | 1.44    |        |  |      | 1.44  |       |  |        |      |       |       |  | 1.44  |       |  |  |      |       |  |  |      |      
|                       | Operating costs        |                        |  | 0.89    |        |  |      | 0.89  |       |  |        |      |       |       |  | 0.89  |       |  |  |      |       |  |  |      |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback before hedging |                        |  | 3.92    |        |  |      | 3.92  |       |  |        |      |       |       |  | 3.92  |       |  |  |      |       |  |  |      |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback after hedging  |                        |  | 3.91    |        |  |      | 3.91  |       |  |        |      |       |       |  | 3.91  |       |  |  |      |       |  |  |      |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Equivalent Unit($/boe) |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Sales revenue          |                        |  | 36.34   |        |  |      | 35.01 |       |  |        | 47.87 |       |       |  | 35.60 |       |  |  | 47.66 |       |  |  | 57.88 |      
|                       | Royalties              |                        |  | 5.96    |        |  |      | 6.22  |       |  |        | 1.80  |       |       |  | 6.03  |       |  |  | 4.91  |       |  |  |      |      
|                       | Operating costs        |                        |  | 7.32    |        |  |      | 7.85  |       |  |        | 3.28  |       |       |  | 7.66  |       |  |  | 2.16  |       |  |  | 16.47 |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback                |                        |  | 23.06   |        |  |      | 20.94 |       |  |        | 42.79 |       |       |  | 21.91 |       |  |  | 40.59 |       |  |  | 41.41 |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 

14



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##### Table of Contents



Oil and Gas Netbacks (continued)


|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |       | 
|---------------------- | ---------------------- | ---------------------- |  | ------- | ------ |  | ---- | ----- | ----- |  | ------ | ----- | ----- | ----- |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                       |                        | 2003                   | 
|                       |                        |                        | 
|                       |                        |                        |  | Western |        |  | East |       |       | 
|                       |                        | Total                  |  |         | Canada |  |      | Coast |       |  | Canada |       |       | China |  |       | Libya | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Crude Oil($/bbl)       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Light crude oil        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 40.17  |  |      |       | 39.91 |  |        |       | 38.91 |       |  |       | 39.55 |  |  |       | 41.45 |  |  |       | 40.44 | 
|                       |                        | Royalties              |  |         | 4.55   |  |      |       | 7.28  |  |        |       | 0.81  |       |  |       | 4.93  |  |  |       | 3.80  |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 5.41   |  |      |       | 9.27  |  |        |       | 3.16  |       |  |       | 7.05  |  |  |       | 1.94  |  |  |       | 15.43 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 30.21  |  |      |       | 23.36 |  |        |       | 34.94 |       |  |       | 27.57 |  |  |       | 35.71 |  |  |       | 25.01 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Medium crude oil       |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 31.57  |  |      |       | 31.57 |  |        |       |      |       |  |       | 31.57 |  |  |       |      |  |  |       |      | 
|                       |                        | Royalties              |  |         | 5.28   |  |      |       | 5.28  |  |        |       |      |       |  |       | 5.28  |  |  |       |      |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 9.53   |  |      |       | 9.53  |  |        |       |      |       |  |       | 9.53  |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 16.76  |  |      |       | 16.76 |  |        |       |      |       |  |       | 16.76 |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Heavy crude oil        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 25.98  |  |      |       | 25.98 |  |        |       |      |       |  |       | 25.98 |  |  |       |      |  |  |       |      | 
|                       |                        | Royalties              |  |         | 2.76   |  |      |       | 2.76  |  |        |       |      |       |  |       | 2.76  |  |  |       |      |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 9.09   |  |      |       | 9.09  |  |        |       |      |       |  |       | 9.09  |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 14.13  |  |      |       | 14.13 |  |        |       |      |       |  |       | 14.13 |  |  |       |      |  |  |       |      | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Total crude oil        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |       |      
|                       |                        | Sales revenue          |  |         | 31.70  |  |      |       | 29.52 |  |        |       | 38.91 |       |  |       | 30.53 |  |  |       | 41.45 |  |  |       | 40.44 | 
|                       |                        | Royalties              |  |         | 3.83   |  |      |       | 4.14  |  |        |       | 0.81  |       |  |       | 3.84  |  |  |       | 3.80  |  |  |       |      | 
|                       |                        | Operating costs        |  |         | 7.97   |  |      |       | 9.23  |  |        |       | 3.16  |       |  |       | 8.68  |  |  |       | 1.94  |  |  |       | 15.43 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback before hedging |  |         | 19.90  |  |      |       | 16.15 |  |        |       | 34.94 |       |  |       | 18.01 |  |  |       | 35.71 |  |  |       | 25.01 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       |                        | Netback after hedging  |  |         | 19.32  |  |      |       | 15.63 |  |        |       | 32.99 |       |  |       | 17.36 |  |  |       | 35.71 |  |  |       | 25.01 | 
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Natural Gas($/mcf)     |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Sales revenue          |                        |  | 5.79    |        |  |      | 5.79  |       |  |        |      |       |       |  | 5.79  |       |  |  |      |       |  |  |      |      
|                       | Royalties              |                        |  | 1.29    |        |  |      | 1.29  |       |  |        |      |       |       |  | 1.29  |       |  |  |      |       |  |  |      |      
|                       | Operating costs        |                        |  | 0.79    |        |  |      | 0.79  |       |  |        |      |       |       |  | 0.79  |       |  |  |      |       |  |  |      |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback before hedging |                        |  | 3.71    |        |  |      | 3.71  |       |  |        |      |       |       |  | 3.71  |       |  |  |      |       |  |  |      |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback after hedging  |                        |  | 3.79    |        |  |      | 3.79  |       |  |        |      |       |       |  | 3.79  |       |  |  |      |       |  |  |      |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|Equivalent Unit($/boe) |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       |  |  |       |       |  |  |      
|                       | Sales revenue          |                        |  | 32.69   |        |  |      | 31.58 |       |  |        | 38.91 |       |       |  | 32.01 |       |  |  | 41.45 |       |  |  | 40.44 |      
|                       | Royalties              |                        |  | 5.11    |        |  |      | 5.48  |       |  |        | 0.81  |       |       |  | 5.21  |       |  |  | 3.80  |       |  |  |      |      
|                       | Operating costs        |                        |  | 6.92    |        |  |      | 7.56  |       |  |        | 3.16  |       |       |  | 7.30  |       |  |  | 1.94  |       |  |  | 15.43 |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 
|                       | Netback                |                        |  | 20.66   |        |  |      | 18.54 |       |  |        | 34.94 |       |       |  | 19.50 |       |  |  | 35.71 |       |  |  | 25.01 |      
|                       |                        |                        |  |         |        |  |      |       |       |  |        |       |       |       |  |       |       | 

15



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##### Table of Contents



Producing Wells


|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        |  |        |       |  |  |        |       | 
|----------------------- | ------------------------- | ----------- | ----- | ----- | ----------------- |  | ----- | ----------- |  |  | ------ | ----- |  | ----------- | ----- | ----- | ------ |  | ------ | ----- |  |  | ------ | ----- | 
|                        |                           | Oil Wells   |       |       | Natural Gas Wells |  |       | Total       | 
|                        |                           |             |       |       |                   |  |       |             | 
|                        |                           | Gross(1)(2) |       |       | Net(1)            |  |       | Gross(1)(2) |  |  | Net(1) |       |  | Gross(1)(2) |       |       | Net(1) | 
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|Canada                  |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        |  |        |       |  |  |        |      
|                        | Alberta                   |             |       | 4,308 |                   |  |       | 3,341       |  |  |        | 4,658 |  |             |       | 3,794 |        |  |        | 8,966 |  |  |        | 7,135 | 
|                        | Saskatchewan              |             |       | 4,567 |                   |  |       | 3,644       |  |  |        | 922   |  |             |       | 826   |        |  |        | 5,489 |  |  |        | 4,470 | 
|                        | British Columbia          |             |       | 224   |                   |  |       | 78          |  |  |        | 183   |  |             |       | 122   |        |  |        | 407   |  |  |        | 200   | 
|                        | Newfoundland and Labrador |             |       | 17    |                   |  |       | 4           |  |  |        |      |  |             |       |      |        |  |        | 17    |  |  |        | 4     | 
|                        | Northwest Territories     |             |       | 5     |                   |  |       | 1           |  |  |        | 5     |  |             |       | 1     |        |  |        | 10    |  |  |        | 2     | 
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|                        |                           |             | 9,121 |       |                   |  | 7,068 |             |  |  | 5,768  |       |  |             | 4,743 |       |        |  | 14,889 |       |  |  | 11,811 |      
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|International           |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        |  |        |       |  |  |        |      
|                        | China                     |             |       | 24    |                   |  |       | 10          |  |  |        |      |  |             |       |      |        |  |        | 24    |  |  |        | 10    | 
|                        | Libya                     |             |       | 2     |                   |  |       | 1           |  |  |        |      |  |             |       |      |        |  |        | 2     |  |  |        | 1     | 
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|                        |                           |             | 26    |       |                   |  | 11    |             |  |  |       |       |  |             |      |       |        |  | 26     |       |  |  | 11     |      
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|As at December 31, 2005 |                           |             | 9,147 |       |                   |  | 7,079 |             |  |  | 5,768  |       |  |             | 4,743 |       |        |  | 14,915 |       |  |  | 11,822 |      
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|Canada                  |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        |  |        |       |  |  |        |      
|                        | Alberta                   |             |       | 4,477 |                   |  |       | 3,525       |  |  |        | 4,219 |  |             |       | 3,367 |        |  |        | 8,696 |  |  |        | 6,892 | 
|                        | Saskatchewan              |             |       | 4,628 |                   |  |       | 3,689       |  |  |        | 763   |  |             |       | 672   |        |  |        | 5,391 |  |  |        | 4,361 | 
|                        | British Columbia          |             |       | 223   |                   |  |       | 78          |  |  |        | 133   |  |             |       | 74    |        |  |        | 356   |  |  |        | 152   | 
|                        | Manitoba                  |             |       | 1     |                   |  |       | 1           |  |  |        |      |  |             |       |      |        |  |        | 1     |  |  |        | 1     | 
|                        | Newfoundland and Labrador |             |       | 10    |                   |  |       | 2           |  |  |        |      |  |             |       |      |        |  |        | 10    |  |  |        | 2     | 
|                        | Northwest Territories     |             |       | 1     |                   |  |       |            |  |  |        | 2     |  |             |       |      |        |  |        | 3     |  |  |        |      | 
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|                        |                           |             | 9,340 |       |                   |  | 7,295 |             |  |  | 5,117  |       |  |             | 4,113 |       |        |  | 14,457 |       |  |  | 11,408 |      
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|International           |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        |  |        |       |  |  |        |      
|                        | China                     |             |       | 17    |                   |  |       | 8           |  |  |        |      |  |             |       |      |        |  |        | 17    |  |  |        | 8     | 
|                        | Libya                     |             |       | 2     |                   |  |       | 1           |  |  |        |      |  |             |       |      |        |  |        | 2     |  |  |        | 1     | 
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|                        |                           |             | 19    |       |                   |  | 9     |             |  |  |       |       |  |             |      |       |        |  | 19     |       |  |  | 9      |      
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 
|As at December 31, 2004 |                           |             | 9,359 |       |                   |  | 7,304 |             |  |  | 5,117  |       |  |             | 4,113 |       |        |  | 14,476 |       |  |  | 11,417 |      
|                        |                           |             |       |       |                   |  |       |             |  |  |        |       |  |             |       |       |        | 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The number of gross wells is the total number of wells in which
    Husky owns a working interest. The number of net wells is the
    sum of the fractional interests owned in the gross wells.
    Producing wells were producing or capable of producing at
    December 31.                                                                                                                                                                                                                     
|   
|(2) | 2005 includes 331 gross, 312 net oil wells and
    566 gross, 459 net natural gas wells and 2004 includes
    482 gross, 411 net oil wells and 538 gross,
    337 net natural gas wells which were completed in two or
    more formations and from which the production is not commingled.
    For the purposes of this table, multiple completions are counted
    as single wells. Where one of the completions in a given well is
    an oil completion, the well is classified as an oil well.
|   
|(3) | The above table does not include wells in which Husky holds a
    royalty interest. At December 31, 2005 Husky had royalty
    interests in 3,679 wells of which 1,370 were oil producers
    and 2,309 were natural gas producers.                                                                                                                                                                                                                                                                

16



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##### Table of Contents



Landholdings


|                        |                                  |                      |       |    |       |  |       |   |       | 
|----------------------- | -------------------------------- | -------------------- | ----- | -- | ----- |  | ----- | - | ----- | 
|                        |                                  | Developed Acreage    |      
|                        |                                  |                      |      
|                        |                                  | Gross                |       |    | Net   | 
|                        |                                  |                      |       |    |       | 
|                        |                                  | (thousands of acres) |      
|As at December 31, 2005 |                                  |                      |       |    |       |  |       |  
|                        | Western Canada                   |                      |       |    |       |  |       |   |      
|                        |                                  | Alberta              |       |    | 3,146 |  |       |   | 2,633 | 
|                        |                                  | Saskatchewan         |       |    | 577   |  |       |   | 517   | 
|                        |                                  | British Columbia     |       |    | 182   |  |       |   | 112   | 
|                        |                                  | Manitoba             |       |    |      |  |       |   |      | 
|                        |                                  |                      |       |    |       | 
|                        |                                  |                      | 3,905 |    |       |  | 3,262 |  
|                        |                                  |                      |       |    |       | 
|                        | Northwest Territories and Arctic |                      |       | 7  |       |  |       | 1 |      
|                        | Eastern Canada                   |                      |       | 35 |       |  |       | 4 |      
|                        |                                  |                      |       |    |       | 
|                        |                                  |                      | 3,947 |    |       |  | 3,267 |  
|                        |                                  |                      |       |    |       | 
|                        | China                            |                      |       | 17 |       |  |       | 7 |      
|                        | Libya                            |                      |       | 7  |       |  |       | 2 |      
|                        |                                  |                      |       |    |       | 
|                        |                                  |                      | 3,971 |    |       |  | 3,276 |  
|                        |                                  |                      |       |    |       | 
|As at December 31, 2004 |                                  |                      |       |    |       |  |       |  
|                        | Western Canada                   |                      |       |    |       |  |       |   |      
|                        |                                  | Alberta              |       |    | 3,200 |  |       |   | 2,687 | 
|                        |                                  | Saskatchewan         |       |    | 567   |  |       |   | 506   | 
|                        |                                  | British Columbia     |       |    | 186   |  |       |   | 110   | 
|                        |                                  | Manitoba             |       |    |      |  |       |   |      | 
|                        |                                  |                      |       |    |       | 
|                        |                                  |                      | 3,953 |    |       |  | 3,303 |  
|                        |                                  |                      |       |    |       | 
|                        | Northwest Territories and Arctic |                      |       | 7  |       |  |       | 1 |      
|                        | Eastern Canada                   |                      |       | 35 |       |  |       | 4 |      
|                        |                                  |                      |       |    |       | 
|                        |                                  |                      | 3,995 |    |       |  | 3,308 |  
|                        |                                  |                      |       |    |       | 
|                        | China                            |                      |       | 17 |       |  |       | 7 |      
|                        | Libya                            |                      |       | 7  |       |  |       | 2 |      
|                        |                                  |                      |       |    |       | 
|                        |                                  |                      | 4,019 |    |       |  | 3,317 |  
|                        |                                  |                      |       |    |       | 

|                        |                                  |                      |        |       |       |  |        |       |       | 
|----------------------- | -------------------------------- | -------------------- | ------ | ----- | ----- |  | ------ | ----- | ----- | 
|                        |                                  | Undeveloped Acreage  |       
|                        |                                  |                      |       
|                        |                                  | Gross                |        |       | Net   | 
|                        |                                  |                      |        |       |       | 
|                        |                                  | (thousands of acres) |       
|As at December 31, 2005 |                                  |                      |        |       |       |  |        |      
|                        | Western Canada                   |                      |        |       |       |  |        |       |      
|                        |                                  | Alberta              |        |       | 4,518 |  |        |       | 3,998 | 
|                        |                                  | Saskatchewan         |        |       | 1,715 |  |        |       | 1,577 | 
|                        |                                  | British Columbia     |        |       | 862   |  |        |       | 615   | 
|                        |                                  | Manitoba             |        |       | 2     |  |        |       | 2     | 
|                        |                                  |                      |        |       |       | 
|                        |                                  |                      | 7,097  |       |       |  | 6,192  |      
|                        |                                  |                      |        |       |       | 
|                        | Northwest Territories and Arctic |                      |        | 664   |       |  |        | 180   |      
|                        | Eastern Canada                   |                      |        | 3,722 |       |  |        | 2,927 |      
|                        |                                  |                      |        |       |       | 
|                        |                                  |                      | 11,483 |       |       |  | 9,299  |      
|                        |                                  |                      |        |       |       | 
|                        | International                    |                      |        | 6,280 |       |  |        | 3,429 |      
|                        |                                  |                      |        |       |       | 
|                        |                                  |                      | 17,763 |       |       |  | 12,728 |      
|                        |                                  |                      |        |       |       | 

17



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##### Table of Contents



Landholdings (continued)


|                        |                                  |                      |        |       |       |  |        |       |       | 
|----------------------- | -------------------------------- | -------------------- | ------ | ----- | ----- |  | ------ | ----- | ----- | 
|                        |                                  | Undeveloped Acreage  |       
|                        |                                  |                      |       
|                        |                                  | Gross                |        |       | Net   | 
|                        |                                  |                      |        |       |       | 
|                        |                                  | (thousands of acres) |       
|As at December 31, 2004 |                                  |                      |        |       |       |  |        |      
|                        | Western Canada                   |                      |        |       |       |  |        |       |      
|                        |                                  | Alberta              |        |       | 4,983 |  |        |       | 4,449 | 
|                        |                                  | Saskatchewan         |        |       | 1,831 |  |        |       | 1,669 | 
|                        |                                  | British Columbia     |        |       | 787   |  |        |       | 544   | 
|                        |                                  | Manitoba             |        |       | 7     |  |        |       | 7     | 
|                        |                                  |                      |        |       |       | 
|                        |                                  |                      | 7,608  |       |       |  | 6,669  |      
|                        | Northwest Territories and Arctic |                      |        | 924   |       |  |        | 254   |      
|                        | Eastern Canada                   |                      |        | 3,154 |       |  |        | 2,104 |      
|                        |                                  |                      |        |       |       | 
|                        |                                  |                      | 11,686 |       |       |  | 9,027  |      
|                        |                                  |                      |        |       |       | 
|                        | International                    |                      |        | 6,280 |       |  |        | 3,429 |      
|                        |                                  |                      |        |       |       | 
|                        |                                  |                      | 17,966 |       |       |  | 12,456 |      
|                        |                                  |                      |        |       |       | 

Drilling Activity


|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     |  |       |     |  |  |       |     | 
|----------------------- | --- | ---------------------- | ----- | --- | ---- |  | ----- | ----- |  |  | ----- | --- |  | ----- | ----- | --- | --- |  | ----- | --- |  |  | ----- | --- | 
|                        |     | Year ended December 31 |      
|                        |     |                        |      
|                        |     | 2005                   |       |     | 2004 |  |       | 2003  | 
|                        |     |                        |       |     |      |  |       |       | 
|                        |     | Gross                  |       |     | Net  |  |       | Gross |  |  | Net   |     |  | Gross |       |     | Net | 
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|Western Canada Drilling |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     |  |       |     |  |  |       |    
|Exploration             |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     |  |       |     |  |  |       |    
|                        | Oil |                        |       | 89  |      |  |       | 85    |  |  |       | 45  |  |       |       | 39  |     |  |       | 12  |  |  |       | 11  | 
|                        | Gas |                        |       | 392 |      |  |       | 196   |  |  |       | 234 |  |       |       | 180 |     |  |       | 147 |  |  |       | 124 | 
|                        | Dry |                        |       | 36  |      |  |       | 36    |  |  |       | 34  |  |       |       | 33  |     |  |       | 22  |  |  |       | 21  | 
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|                        |     |                        | 517   |     |      |  | 317   |       |  |  | 313   |     |  |       | 252   |     |     |  | 181   |     |  |  | 156   |    
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|Development             |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     |  |       |     |  |  |       |    
|                        | Oil |                        |       | 466 |      |  |       | 433   |  |  |       | 552 |  |       |       | 499 |     |  |       | 520 |  |  |       | 490 | 
|                        | Gas |                        |       | 610 |      |  |       | 551   |  |  |       | 807 |  |       |       | 740 |     |  |       | 540 |  |  |       | 518 | 
|                        | Dry |                        |       | 42  |      |  |       | 39    |  |  |       | 57  |  |       |       | 53  |     |  |       | 60  |  |  |       | 57  | 
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|                        |     |                        | 1,118 |     |      |  | 1,023 |       |  |  | 1,416 |     |  |       | 1,292 |     |     |  | 1,120 |     |  |  | 1,065 |    
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|                        |     |                        | 1,635 |     |      |  | 1,340 |       |  |  | 1,729 |     |  |       | 1,544 |     |     |  | 1,301 |     |  |  | 1,221 |    
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 

Present Activities


|                  |  |             |    |  |             |  |     |       |  |  |     |  |  |  |      | 
|----------------- |  | ----------- | -- |  | ----------- |  | --- | ----- |  |  | --- |  |  |  | ---- | 
|                  |  | Exploratory |    |  | Development | 
|                  |  |             |    |  |             | 
|Wells Drilling(1) |  | Gross       |    |  | Net         |  |     | Gross |  |  | Net | 
|                  |  |             |    |  |             |  |     |       |  |  |     | 
|Western Canada    |  |             | 12 |  |             |  | 8.1 |       |  |  | 17  |  |  |  | 14.5 | 
|East Coast        |  |             |   |  |             |  |    |       |  |  | 2   |  |  |  | 0.9  | 
|China             |  |             |   |  |             |  |    |       |  |  |    |  |  |  |     | 
|                  |  |             |    |  |             |  |     |       |  |  |     | 
|                  |  |             | 12 |  |             |  | 8.1 |       |  |  | 19  |  |  |  | 15.4 | 
|                  |  |             |    |  |             |  |     |       |  |  |     | 








|    |                                                       
|--- | ------------------------------------------------------
|(1) | Denotes wells that were drilling at December 31, 2005.

18



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##### Table of Contents



Reserves Data and Other Oil and Gas Information




Audit
of Oil and Gas Reserves




Oil
and Gas Reserves Data




Proved Reserves


|                             |  |                    |     |  |                |              |     |              |  |                 |        |  |  |    |       |  |     |  |        |  |  |  |        | 
|---------------------------- |  | ------------------ | --- |  | -------------- | ------------ | --- | ------------ |  | --------------- | ------ |  |  | -- | ----- |  | --- |  | ------ |  |  |  | ------ | 
|                             |  |                    |     |  |                |              |     |              |  | Future Net Cash |       
|                             |  |                    |     |  |                | Flows Before |    
|                             |  | Crude Oil & NGL(1) |     |  | Natural Gas(1) |              |     | Tax(1)(4)    | 
|                             |  |                    |     |  |                |              |     |              | 
|                             |  | Gross(2)           |     |  | Net(2)         |              |     | Gross(2)     |  |                 | Net(2) |  |  | 0% |       |  | 10% | 
|                             |  |                    |     |  |                |              |     |              |  |                 |        |  |  |    |       |  |     | 
|                             |  | (mmbbls)           |     |  | (bcf)          |              |     | ($ millions) | 
|Proved
    developed(3)      |  |                    | 446 |  |                |              | 399 |              |  |                 | 1,710  |  |  |    | 1,413 |  |     |  | 22,512 |  |  |  | 13,782 | 
|Proved
    undeveloped(3)(5) |  |                    | 183 |  |                |              | 166 |              |  |                 | 426    |  |  |    | 358   |  |     |  | 5,001  |  |  |  | 2,923  | 
|                             |  |                    |     |  |                |              |     |              |  |                 |        |  |  |    |       |  |     | 
|Proved
    total(3)          |  |                    | 629 |  |                |              | 565 |              |  |                 | 2,136  |  |  |    | 1,771 |  |     |  | 27,513 |  |  |  | 16,705 | 
|                             |  |                    |     |  |                |              |     |              |  |                 |        |  |  |    |       |  |     | 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Husky applied for and was granted an exemption from National
    Instrument 51-101
    Standards of Disclosure for Oil and Gas Activities
    to provide oil and gas reserves disclosures in accordance with
    the U.S. Securities and Exchange Commission guidelines and
    the U.S. Financial Accounting Standards Board disclosure
    standards. The information disclosed may differ from information
    prepared in accordance with National
    Instrument 51-101.
    Huskys internally generated oil and gas reserves data was
    audited by an independent firm of qualified reserves evaluators.
|   
|(2) | Gross reserves are Huskys lessor royalty, overriding
    royalty and working interest share of reserves, before deduction
    of royalties. Net reserves are gross reserves, less royalties.                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(3) | These reserve categories have the same meanings as those set out
    in SEC Regulation S-X.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | The discounted future net cash flows at December 31, 2005
    were based on the year-end spot NYMEX natural gas price of
    U.S. $9.52/mmbtu and on a spot WTI crude oil price of
    U.S. $61.06/bbl.                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) | Estimated future capital expenditures required to gain access to
    proved undeveloped reserves as at December 31, 2005 and
    2004 were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|               |  |                           |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |            |  |  |    |  |  |  |     | 
|-------------- |  | ------------------------- | ----- |  | ---- |  | --- | ---- |  |  | ---- |  |  | ---- | --- |  | ---- |  | --- | ---------- |  |  | -- |  |  |  | --- | 
|               |  | As at December 31, 2005   |      
|               |  |                           |      
|               |  | Total                     |       |  | 2006 |  |     | 2007 |  |  | 2008 |  |  | 2009 |     |  | 2010 |  |     | Thereafter | 
|               |  |                           |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |            | 
|               |  | ($ millions undiscounted) |      
|Western Canada |  |                           | 1,428 |  |      |  | 545 |      |  |  | 353  |  |  |      | 191 |  |      |  | 116 |            |  |  | 56 |  |  |  | 167 | 
|Eastern Canada |  |                           | 109   |  |      |  | 87  |      |  |  |     |  |  |      |    |  |      |  |    |            |  |  |   |  |  |  | 22  | 
|               |  |                           |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |            | 
|               |  |                           | 1,537 |  |      |  | 632 |      |  |  | 353  |  |  |      | 191 |  |      |  | 116 |            |  |  | 56 |  |  |  | 189 | 
|               |  |                           |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |     |            | 

19



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##### Table of Contents



|               |  |                         |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |    |            |  |  |    |  |  |  |     |  
|-------------- |  | ----------------------- | ----- |  | ---- |  | --- | ---- |  |  | ---- |  |  | ---- | --- |  | ---- |  | -- | ---------- |  |  | -- |  |  |  | --- | -
|               |  | As at December 31, 2004 |      
|               |  |                         |      
|               |  | Total                   |       |  | 2005 |  |     | 2006 |  |  | 2007 |  |  | 2008 |     |  | 2009 |  |    | Thereafter | 
|               |  |                         |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |    |            | 
|Western Canada |  |                         | 651   |  |      |  | 218 |      |  |  | 210  |  |  |      | 107 |  |      |  | 34 |            |  |  | 13 |  |  |  | 69  |  
|Eastern Canada |  |                         | 352   |  |      |  | 390 |      |  |  | 19   |  |  |      | 9   |  |      |  | 11 |            |  |  | 4  |  |  |  | (81 | )
|               |  |                         |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |    |            | 
|               |  |                         | 1,003 |  |      |  | 608 |      |  |  | 229  |  |  |      | 116 |  |      |  | 45 |            |  |  | 17 |  |  |  | (12 | )
|               |  |                         |       |  |      |  |     |      |  |  |      |  |  |      |     |  |      |  |    |            | 



|    |                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | On December 31, 2005, the date our oil and gas reserves
    were evaluated, the calculated price of Lloydminster heavy crude
    oil was $28.57 per barrel. Our heavy crude oil reserves were
    economic at that price and no negative price revision resulted.

Reconciliation of Gross Proved Reserves


|                    |                            |                |     |      |               |  |     |           |   |  |         |      |   |            |       |       |           |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     |      |   |  |       |      |  
|------------------- | -------------------------- | -------------- | --- | ---- | ------------- |  | --- | --------- | - |  | ------- | ---- | - | ---------- | ----- | ----- | --------- |  | ----------- | --------- |  | ------- | ----- | -- | --------- | -------- | -- | ------- | ----- |  | --- | ---- | - |  | --- | ---- | - |  | ----- | ---- | -
|                    |                            | Canada         |     |      | International |  |     | Total     |  
|                    |                            |                |     |      |               |  |     |           |  
|                    |                            |                |     | East |               |  |     |           |  
|                    |                            | Western Canada |     |      | Coast         |  |     |           |   | 
|                    |                            |                |     |      |               |  |     |           |   | 
|Proved Reserves,    |                            | Light Crude    |     |      | Medium        |  |     | Heavy     |   |  | Natural |      |   |            |       | Light |           |  | Light Crude |           |  | Natural |       |    | Crude Oil |          |    | Natural |      
|Before Royalties(1) |                            | Oil & NGL      |     |      | Crude Oil     |  |     | Crude Oil |   |  | Gas     |      |   | Bitumen(2) |       |       | Crude Oil |  |             | Oil & NGL |  |         | Gas   |    |           | & NGL    |    |         | Gas   | 
|                    |                            |                |     |      |               |  |     |           |   |  |         |      |   |            |       |       |           |  |             |           |  |         |       |    |           |          |    |         |       | 
|                    |                            | (mmbbls)       |     |      | (mmbbls)      |  |     | (mmbbls)  |   |  | (bcf)   |      |   | (mmbbls)   |       |       | (mmbbls)  |  |             | (mmbbls)  |  |         | (bcf) |    |           | (mmbbls) |    |         | (bcf) | 
|End of 2002         |                            |                | 166 |      |               |  | 108 |           |   |  | 227     |      |   |            | 1,952 |       |           |  |             |           |  |         | 31    |    |           |          | 37 |         |       |  | 143 |      |   |  | 569 |      |   |  | 2,095 |     
|                    |                            |                |     |      |               |  |     |           |   |  |         |      |   |            |       |       |           |  |             |           |  |         |       |    |           |          |    |         |       | 
|                    | Revisions                  |                |     | 5    |               |  |     | 1         |   |  |         | 6    |   |            |       | (132  | )         |  |             |           |  |         |       | 1  |           |          |    | (5      | )     |  |     | (143 | ) |  |     | 8    |   |  |       | (275 | )
|                    | Purchases                  |                |     | 9    |               |  |     |           |   |  |         | 3    |   |            |       | 184   |           |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | 12   |   |  |       | 184  |  
|                    | Sales                      |                |     | (1   | )             |  |     | (3        | ) |  |         | (1   | ) |            |       | (23   | )         |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | (5   | ) |  |       | (23  | )
|                    | Discoveries and extensions |                |     | 5    |               |  |     | 2         |   |  |         | 29   |   |            |       | 300   |           |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | 36   |   |  |       | 300  |  
|                    | Improved recovery          |                |     | 1    |               |  |     |           |   |  |         |      |   |            |       | 1     |           |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | 1    |   |  |       | 1    |  
|                    | Production                 |                |     | (12  | )             |  |     | (14       | ) |  |         | (37  | ) |            |       | (223  | )         |  |             |           |  |         |       | (6 | )         |          |    | (8      | )     |  |     |      |   |  |     | (77  | ) |  |       | (223 | )
|End of 2003         |                            |                | 173 |      |               |  | 94  |           |   |  | 227     |      |   |            | 2,059 |       |           |  |             |           |  |         | 26    |    |           |          | 24 |         |       |  |     |      |   |  | 544 |      |   |  | 2,059 |     
|                    |                            |                |     |      |               |  |     |           |   |  |         |      |   |            |       |       |           |  |             |           |  |         |       |    |           |          |    |         |       | 
|                    | Revisions                  |                |     | 1    |               |  |     | 1         |   |  |         | (114 | ) |            |       | (23   | )         |  |             |           |  |         |       | (1 | )         |          |    | 3       |       |  |     |      |   |  |     | (110 | ) |  |       | (23  | )
|                    | Purchases                  |                |     | 1    |               |  |     |           |   |  |         |      |   |            |       | 23    |           |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | 1    |   |  |       | 23   |  
|                    | Sales                      |                |     |      |               |  |     |           |   |  |         | (1   | ) |            |       | (14   | )         |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | (1   | ) |  |       | (14  | )
|                    | Discoveries and extensions |                |     | 7    |               |  |     | 2         |   |  |         | 32   |   |            |       | 372   |           |  |             |           |  |         |       | 24 |           |          |    |         |       |  |     |      |   |  |     | 65   |   |  |       | 372  |  
|                    | Improved recovery          |                |     | 1    |               |  |     | 2         |   |  |         | 1    |   |            |       | 4     |           |  |             |           |  |         |       | 3  |           |          |    |         |       |  |     |      |   |  |     | 7    |   |  |       | 4    |  
|                    | Production                 |                |     | (12  | )             |  |     | (13       | ) |  |         | (40  | ) |            |       | (252  | )         |  |             |           |  |         |       | (5 | )         |          |    | (7      | )     |  |     |      |   |  |     | (77  | ) |  |       | (252 | )
|End of 2004         |                            |                | 171 |      |               |  | 86  |           |   |  | 105     |      |   |            | 2,169 |       |           |  |             |           |  |         | 47    |    |           |          | 20 |         |       |  |     |      |   |  | 429 |      |   |  | 2,169 |     
|                    |                            |                |     |      |               |  |     |           |   |  |         |      |   |            |       |       |           |  |             |           |  |         |       |    |           |          |    |         |       | 
|                    | Revisions                  |                |     | 3    |               |  |     | 9         |   |  |         | 121  |   |            |       | (65   | )         |  |             |           |  |         |       | 9  |           |          |    | 2       |       |  |     |      |   |  |     | 144  |   |  |       | (65  | )
|                    | Purchases                  |                |     |      |               |  |     |           |   |  |         | 7    |   |            |       | 3     |           |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | 7    |   |  |       | 3    |  
|                    | Sales                      |                |     |      |               |  |     | (3        | ) |  |         | (4   | ) |            |       | (9    | )         |  |             |           |  |         |       |    |           |          |    |         |       |  |     |      |   |  |     | (7   | ) |  |       | (9   | )
|                    | Discoveries and extensions |                |     | 4    |               |  |     | 3         |   |  |         | 27   |   |            |       | 277   |           |  |             | 48        |  |         |       | 16 |           |          |    | 1       |       |  |     |      |   |  |     | 99   |   |  |       | 277  |  
|                    | Improved recovery          |                |     | 1    |               |  |     | 7         |   |  |         |      |   |            |       | 9     |           |  |             |           |  |         |       | 23 |           |          |    |         |       |  |     |      |   |  |     | 31   |   |  |       | 9    |  
|                    | Production                 |                |     | (12  | )             |  |     | (11       | ) |  |         | (39  | ) |            |       | (248  | )         |  |             |           |  |         |       | (6 | )         |          |    | (6      | )     |  |     |      |   |  |     | (74  | ) |  |       | (248 | )
|                    |                            |                |     |      |               |  |     |           |   |  |         |      |   |            |       |       |           |  |             |           |  |         |       |    |           |          |    |         |       | 
|End of 2005         |                            |                | 167 |      |               |  | 91  |           |   |  | 217     |      |   |            | 2,136 |       |           |  | 48          |           |  |         | 89    |    |           |          | 17 |         |       |  |     |      |   |  | 629 |      |   |  | 2,136 |     
|                    |                            |                |     |      |               |  |     |           |   |  |         |      |   |            |       |       |           |  |             |           |  |         |       |    |           |          |    |         |       | 








|    |                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Proved reserves are the estimated quantities of crude oil,
    natural gas and NGL which geological and engineering data
    demonstrate with reasonable certainty to be recoverable in
    future years from known reservoirs under existing economic and
    operating conditions.
|   
|(2) | Bitumen is very heavy crude oil that is 10 degrees API and
    lower.                                                                                                                                                                                                               

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Gross Reserves and Production by Principal Area


|                     |                   |                                   |                            |  |             |     |     |  |    |    | 
|-------------------- | ----------------- | --------------------------------- | -------------------------- |  | ----------- | --- | --- |  | -- | -- | 
|Crude Oil and NGL(1) |                   | Proved Reserves                   |                            |  | Production  |    
|                     |                   |                                   |                            |  |             |    
|                     |                   | (mmbbls)                          |                            |  | (mbbls/day) |    
|Canada               |                   |                                   |                            |  |             |     |     | 
|                     | Western Canada    |                                   |                            |  |             |     |     |  |   
|                     |                   | British Columbia and Foothills    |                            |  |             |     |     |  |    |   
|                     |                   |                                   | Alberta and BC Plains area |  |             | 29  |     |  |    | 6  | 
|                     |                   |                                   | Foothills Deep Gas area    |  |             | 24  |     |  |    | 6  | 
|                     |                   |                                   | Ram River and Kaybob areas |  |             | 7   |     |  |    | 2  | 
|                     |                   | Northwest Alberta Plains          |                            |  |             |     |     |  |    |   
|                     |                   |                                   | Rainbow Lake area          |  |             | 83  |     |  |    | 8  | 
|                     |                   |                                   | Peace River Arch area      |  |             | 10  |     |  |    | 4  | 
|                     |                   | East Central Alberta              |                            |  |             |     |     |  |    |   
|                     |                   |                                   | North area                 |  |             | 2   |     |  |    | 1  | 
|                     |                   |                                   | South area                 |  |             | 7   |     |  |    | 3  | 
|                     |                   |                                   | Provost area               |  |             | 29  |     |  |    | 15 | 
|                     |                   | Southern Alberta and Saskatchewan |                            |  |             |     |     |  |    |   
|                     |                   |                                   | South Alberta area         |  |             | 25  |     |  |    | 9  | 
|                     |                   |                                   | South Saskatchewan area    |  |             | 69  |     |  |    | 17 | 
|                     |                   | Lloydminster Area                 |                            |  |             |     |     |  |    |   
|                     |                   |                                   | Primary production         |  |             | 124 |     |  |    | 79 | 
|                     |                   |                                   | Thermal production         |  |             | 66  |     |  |    | 18 | 
|                     |                   | Oil Sands                         |                            |  | 48          |     |     |  |   |   
|                     |                   | Other(2)                          |                            |  |            |     |     |  | 1  |   
|                     |                   |                                   |                            |  |             |    
|                     |                   |                                   | 523                        |  |             |     | 169 | 
|                     |                   |                                   |                            |  |             |    
|                     | East Coast Canada |                                   |                            |  |             |     |     |  |   
|                     |                   |                                   | Terra Nova                 |  |             | 21  |     |  |    | 12 | 
|                     |                   |                                   | White Rose                 |  |             | 68  |     |  |    | 5  | 
|                     |                   |                                   |                            |  |             |    
|                     |                   |                                   | 89                         |  |             |     | 17  | 
|                     |                   |                                   |                            |  |             |    
|                     | China             |                                   |                            |  |             |     |     |  |   
|                     |                   | Wenchang                          |                            |  | 17          |     |     |  | 16 |   
|                     |                   |                                   |                            |  |             |    
|                     |                   |                                   | 629                        |  |             |     | 202 | 
|                     |                   |                                   |                            |  |             |    








|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(1) | Gross crude oil and NGL reserves as at December 31, 2005
    and average 2005 daily gross production of crude oil and NGL.
|   
|(2) | Other is comprised primarily of royalty interests, which are not
    considered to be reserves.                           

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|               |                |                                   |                            |  |            |     |     |  |    |    | 
|-------------- | -------------- | --------------------------------- | -------------------------- |  | ---------- | --- | --- |  | -- | -- | 
|Natural Gas(1) |                | Proved Reserves                   |                            |  | Production |    
|               |                |                                   |                            |  |            |    
|               |                | (bcf)                             |                            |  | (mmcf/day) |    
|Canada         |                |                                   |                            |  |            |     |     | 
|               | Western Canada |                                   |                            |  |            |     |     |  |   
|               |                | British Columbia and Foothills    |                            |  |            |     |     |  |    |   
|               |                |                                   | Alberta and BC Plains area |  |            | 174 |     |  |    | 56 | 
|               |                |                                   | Foothills Deep Gas area    |  |            | 278 |     |  |    | 92 | 
|               |                |                                   | Ram River and Kaybob areas |  |            | 249 |     |  |    | 76 | 
|               |                | Northwest Alberta Plains          |                            |  |            |     |     |  |    |   
|               |                |                                   | Rainbow Lake area          |  |            | 381 |     |  |    | 56 | 
|               |                |                                   | Peace River Arch           |  |            | 47  |     |  |    | 25 | 
|               |                |                                   | Northern Alberta area      |  |            | 246 |     |  |    | 89 | 
|               |                | East Central Alberta              |                            |  |            |     |     |  |    |   
|               |                |                                   | Provost area               |  |            | 73  |     |  |    | 22 | 
|               |                |                                   | North area                 |  |            | 177 |     |  |    | 54 | 
|               |                |                                   | South area                 |  |            | 197 |     |  |    | 57 | 
|               |                | Southern Alberta and Saskatchewan |                            |  |            |     |     |  |    |   
|               |                |                                   | South Alberta area         |  |            | 52  |     |  |    | 32 | 
|               |                |                                   | South Saskatchewan area    |  |            | 188 |     |  |    | 58 | 
|               |                | Lloydminster Area                 |                            |  | 74         |     |     |  | 56 |   
|               |                | Other(2)                          |                            |  |           |     |     |  | 7  |   
|               |                |                                   |                            |  |            |    
|               |                |                                   | 2,136                      |  |            |     | 680 | 
|               |                |                                   |                            |  |            |    








|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(1) | Gross natural gas reserves as at December 31, 2005 and
    average 2005 daily gross production of natural gas.
|   
|(2) | Other is comprised primarily of royalty interests, which are not
    considered to be reserves.               

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Gross Probable Oil and Gas
Reserves (1)


Crude Oil & NGL


|     |  |                |     |  |         |  |     |            |  |  |               |  |  |       |    |  |  |  |       | 
|---- |  | -------------- | --- |  | ------- |  | --- | ---------- |  |  | ------------- |  |  | ----- | -- |  |  |  | ----- | 
|     |  | Canada         |     |  |         |  |    
|     |  |                |     |  |         |  |    
|     |  | Western Canada |     |  |         |  |     |            | 
|     |  |                |     |  |         |  |     |            | 
|     |  | Conventional   |     |  | Bitumen |  |     | East Coast |  |  | International |  |  | Total |   
|     |  |                |     |  |         |  |     |            |  |  |               |  |  |       |   
|     |  | (mmbbls)       |    
|2005 |  |                | 146 |  |         |  | 903 |            |  |  | 118           |  |  |       | 13 |  |  |  | 1,180 | 
|2004 |  |                | 113 |  |         |  | 79  |            |  |  | 156           |  |  |       | 13 |  |  |  | 361   | 
|2003 |  |                | 167 |  |         |  | 79  |            |  |  | 182           |  |  |       | 7  |  |  |  | 435   | 

Natural Gas


|     |  |                |     |  |               |  |     |       |  |  |     | 
|---- |  | -------------- | --- |  | ------------- |  | --- | ----- |  |  | --- | 
|     |  | Canada         |     |  |               |  |    
|     |  |                |     |  |               |  |    
|     |  | Western Canada |     |  |               |  |    
|     |  |                |     |  |               |  |    
|     |  | Conventional   |     |  | International |  |     | Total | 
|     |  |                |     |  |               |  |     |       | 
|     |  | (bcf)          |    
|2005 |  |                | 407 |  |               |  | 167 |       |  |  | 574 | 
|2004 |  |                | 388 |  |               |  | 167 |       |  |  | 555 | 
|2003 |  |                | 381 |  |               |  | 67  |       |  |  | 448 | 

Barrels of Oil Equivalent


|     |  |                |     |  |         |  |     |            |  |  |               |  |  |       |    |  |  |  |       | 
|---- |  | -------------- | --- |  | ------- |  | --- | ---------- |  |  | ------------- |  |  | ----- | -- |  |  |  | ----- | 
|     |  | Canada         |     |  |         |  |    
|     |  |                |     |  |         |  |    
|     |  | Western Canada |     |  |         |  |     |            | 
|     |  |                |     |  |         |  |     |            | 
|     |  | Conventional   |     |  | Bitumen |  |     | East Coast |  |  | International |  |  | Total |   
|     |  |                |     |  |         |  |     |            |  |  |               |  |  |       |   
|     |  | (mmboe)        |    
|2005 |  |                | 213 |  |         |  | 903 |            |  |  | 118           |  |  |       | 41 |  |  |  | 1,275 | 
|2004 |  |                | 177 |  |         |  | 79  |            |  |  | 156           |  |  |       | 41 |  |  |  | 453   | 
|2003 |  |                | 231 |  |         |  | 79  |            |  |  | 182           |  |  |       | 18 |  |  |  | 510   | 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The probable reserves presented have been prepared, using
    constant prices and costs, in accordance with
    NI 51-101.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | Probable bitumen reserves were based on constant prices
    calculated in accordance with the Canadian Securities
    Administrators Staff
    Notice 51-315
    Guidance Regarding the Determination of Constant Prices
    for Bitumen Reserves under National
    Instrument 51-101
    Standards of Disclosure for Oil and Gas Activities (the
    Staff Notice). Bitumen reserves at December 31,
    2004 remain classified as probable reserves because the pricing
    formula in the Staff Notice results in an economically viable
    price as at that date whereas 37 mmbbls of heavy oil
    reserves were subtracted from probable reserves due to low
    December 31, 2004 heavy oil prices under the constant
    pricing calculation applicable to heavy oil, which differed from
    the bitumen calculation. See Disclosure of Exemption under
    National
    Instrument 51-101
    for further discussion.
|   
|(3) | Proved and probable bitumen reserves are included under the
    caption Western Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | The SEC generally permits oil and gas registrants to disclose
    only reserves that meet the standards for proved reserves. Due
    to the higher uncertainty associated with probable reserves,
    disclosure or reference to probable reserves does not meet the
    standards for the inclusion in a document filed with the SEC.
    The disclosure of probable reserves is included herein in
    accordance with certain undertakings made in an exemption order
    granted to Husky pursuant to Part 8 of the Companion Policy
    to NI 51-101.                                                                                                                                                                                                                                                                                                                                                                            

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| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Disclosure about Oil and Gas Producing
    Activities  Statement of Financial Accounting
    Standards No. 69



Oil and Gas Reserves












Results of Operations for Producing Activities


|                                         |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |       |     |  |  |       |     |  |  |       |     | 
|---------------------------------------- | ------------------------------------- | ----------------------------------- | ----- | --- | ------------- |  | ----- | ----- |  |  | ----- | --- |  | ---- | ---- | -- | ---- |  | ---- | ---- |  |  | ---- | -- |  | ---- | ----- | --- |  |  | ----- | --- |  |  | ----- | --- | 
|                                         |                                       | Canada                              |       |     | International |  |       | Total | 
|Results of Operations for                |                                       |                                     |       |     |               |  |       |       | 
|Producing Activities(1)(2)               |                                       | 2005                                |       |     | 2004          |  |       | 2003  |  |  | 2005  |     |  | 2004 |      |    | 2003 |  |      | 2005 |  |  | 2004 |    |  | 2003 |      
|                                         |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |      
|                                         |                                       | ($ millions except per boe amounts) |      
|Oil and gas production revenue           |                                       |                                     | 4,085 |     |               |  | 2,866 |       |  |  | 2,917 |     |  |      | 337  |    |      |  | 310  |      |  |  | 310  |    |  |      | 4,422 |     |  |  | 3,176 |     |  |  | 3,227 |    
|                                         |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |      
|Operating costs                          |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |       |     |  |  |       |     |  |  |       |    
|                                         | Lease operating expenses              |                                     |       | 925 |               |  |       | 874   |  |  |       | 794 |  |      |      | 18 |      |  |      | 17   |  |  |      | 17 |  |      |       | 943 |  |  |       | 891 |  |  |       | 811 | 
|                                         | Production taxes                      |                                     |       | 56  |               |  |       | 56    |  |  |       | 41  |  |      |      |   |      |  |      |     |  |  |      |   |  |      |       | 56  |  |  |       | 56  |  |  |       | 41  | 
|                                         | Asset retirement obligation accretion |                                     |       | 28  |               |  |       | 23    |  |  |       | 18  |  |      |      |   |      |  |      |     |  |  |      |   |  |      |       | 28  |  |  |       | 23  |  |  |       | 18  | 
|                                         |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |      
|                                         |                                       |                                     | 1,009 |     |               |  | 953   |       |  |  | 853   |     |  |      | 18   |    |      |  | 17   |      |  |  | 17   |    |  |      | 1,027 |     |  |  | 970   |     |  |  | 870   |    
|Depreciation, depletion and amortization |                                       |                                     | 1,102 |     |               |  | 1,018 |       |  |  | 852   |     |  |      | 42   |    |      |  | 59   |      |  |  | 66   |    |  |      | 1,144 |     |  |  | 1,077 |     |  |  | 918   |    
|                                         |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |      
|Earnings before taxes                    |                                       |                                     | 1,974 |     |               |  | 895   |       |  |  | 1,212 |     |  |      | 277  |    |      |  | 234  |      |  |  | 227  |    |  |      | 2,251 |     |  |  | 1,129 |     |  |  | 1,439 |    
|Income tax                               |                                       |                                     | 730   |     |               |  | 349   |       |  |  | 491   |     |  |      | 106  |    |      |  | 92   |      |  |  | 91   |    |  |      | 836   |     |  |  | 441   |     |  |  | 582   |    
|                                         |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |      
|Results of operations                    |                                       |                                     | 1,244 |     |               |  | 546   |       |  |  | 721   |     |  |      | 171  |    |      |  | 142  |      |  |  | 136  |    |  |      | 1,415 |     |  |  | 688   |     |  |  | 857   |    
|                                         |                                       |                                     |       |     |               |  |       |       |  |  |       |     |  |      |      |    |      |  |      |      |  |  |      |    |  |      |      
|Operating costs per gross
    boe(3)     |                                       |                                     | 8.39  |     |               |  | 7.66  |       |  |  | 7.30  |     |  |      | 3.06 |    |      |  | 2.25 |      |  |  | 2.04 |    |  |      | 8.12  |     |  |  | 7.32  |     |  |  | 6.92  |    
|Operating costs per net
    boe(4)       |                                       |                                     | 11.09 |     |               |  | 10.02 |       |  |  | 9.32  |     |  |      | 3.24 |    |      |  | 2.81 |      |  |  | 2.31 |    |  |      | 10.64 |     |  |  | 9.55  |     |  |  | 8.78  |    
|Amortization rate per gross boe          |                                       |                                     | 10.10 |     |               |  | 9.11  |       |  |  | 8.05  |     |  |      | 7.21 |    |      |  | 8.19 |      |  |  | 8.00 |    |  |      | 9.95  |     |  |  | 9.06  |     |  |  | 8.04  |    
|Amortization rate per net boe            |                                       |                                     | 12.45 |     |               |  | 10.97 |       |  |  | 9.51  |     |  |      | 7.96 |    |      |  | 9.13 |      |  |  | 8.81 |    |  |      | 12.19 |     |  |  | 10.85 |     |  |  | 9.46  |    








|    |                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The costs in this schedule exclude corporate overhead, interest
    expense and other operating costs, which are not directly
    related to producing activities.                                                                                                                                                                                  
|   
|(2) | Under U.S. GAAP, the depreciation, depletion and
    amortization for Canadian producing activities for 2005 amounted
    to $1,036 million (2004  $981 million;
    2003  $772 million). Income taxes for Canadian
    producing activities under U.S. GAAP for 2005 amounted to
    $755 million (2004  $364 million;
    2003  $511 million).
|   
|(3) | Unit operating costs are field operating expenses divided by
    gross production.                                                                                                                                                                                                                                                                  
|   
|(4) | Unit operating costs include field operating costs, direct
    administrative expenses and production taxes divided by net
    production.                                                                                                                                                                                                          

24



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##### Table of Contents



Costs Incurred in Oil and Gas Property Acquisition,
Exploration and Development
Activities (1)


|                              |          |                           |       |     |               |  |    |       |   |  |       |     |     | 
|----------------------------- | -------- | ------------------------- | ----- | --- | ------------- |  | -- | ----- | - |  | ----- | --- | --- | 
|                              |          | Canada                    |       |     | International |  |    | Total |  
|                              |          |                           |       |     |               |  |    |       |  
|                              |          | ($ millions)              |      
|2005                          |          |                           |       |     |               |  |    |       |   |  |       |    
|Property acquisition          |          |                           |       |     |               |  |    |       |   |  |       |    
|                              | Proved   |                           |       | 68  |               |  |    |      |   |  |       | 68  |    
|                              | Unproved |                           |       | 65  |               |  |    |      |   |  |       | 65  |    
|Exploration                   |          |                           | 390   |     |               |  | 55 |       |   |  | 445   |    
|Development                   |          |                           | 2,042 |     |               |  | 23 |       |   |  | 2,065 |    
|Capitalized interest          |          |                           | 112   |     |               |  |   |       |   |  | 112   |    
|                              |          |                           |       |     |               |  |    |       |  
|Total costs incurred          |          |                           | 2,677 |     |               |  | 78 |       |   |  | 2,755 |    
|                              |          | Less: Proved acquisitions |       |     | 68            |  |    |       |  |  |       |     | 68  | 
|                              |          | Capitalized interest      |       |     | 112           |  |    |       |  |  |       |     | 112 | 
|                              |          |                           |       |     |               |  |    |       |  
|Finding and development costs |          |                           | 2,497 |     |               |  | 78 |       |   |  | 2,575 |    
|                              |          |                           |       |     |               |  |    |       |  
|2004                          |          |                           |       |     |               |  |    |       |   |  |       |    
|Property acquisition          |          |                           |       |     |               |  |    |       |   |  |       |    
|                              | Proved   |                           |       | 101 |               |  |    |      |   |  |       | 101 |    
|                              | Unproved |                           |       | 91  |               |  |    | 62    |   |  |       | 153 |    
|Exploration                   |          |                           | 295   |     |               |  | 18 |       |   |  | 313   |    
|Development                   |          |                           | 1,712 |     |               |  | 4  |       |   |  | 1,716 |    
|Capitalized interest          |          |                           | 75    |     |               |  |   |       |   |  | 75    |    
|                              |          |                           |       |     |               |  |    |       |  
|Total costs incurred          |          |                           | 2,274 |     |               |  | 84 |       |   |  | 2,358 |    
|                              |          | Less: Proved acquisitions |       |     | 101           |  |    |       |  |  |       |     | 101 | 
|                              |          | Capitalized interest      |       |     | 75            |  |    |       |  |  |       |     | 75  | 
|                              |          |                           |       |     |               |  |    |       |  
|Finding and development costs |          |                           | 2,098 |     |               |  | 84 |       |   |  | 2,182 |    
|                              |          |                           |       |     |               |  |    |       |  
|2003                          |          |                           |       |     |               |  |    |       |   |  |       |    
|Property acquisition          |          |                           |       |     |               |  |    |       |   |  |       |    
|                              | Proved   |                           |       | 541 |               |  |    |      |   |  |       | 541 |    
|                              | Unproved |                           |       | 106 |               |  |    |      |   |  |       | 106 |    
|Exploration                   |          |                           | 298   |     |               |  | 26 |       |   |  | 324   |    
|Development                   |          |                           | 1,402 |     |               |  | 2  |       |   |  | 1,404 |    
|Capitalized interest          |          |                           | 52    |     |               |  |   |       |   |  | 52    |    
|                              |          |                           |       |     |               |  |    |       |  
|Total costs incurred          |          |                           | 2,399 |     |               |  | 28 |       |   |  | 2,427 |    
|                              |          | Less: Proved acquisitions |       |     | 541           |  |    |       |  |  |       |     | 541 | 
|                              |          | Capitalized interest      |       |     | 52            |  |    |       |  |  |       |     | 52  | 
|                              |          |                           |       |     |               |  |    |       |  
|Finding and development costs |          |                           | 1,806 |     |               |  | 28 |       |   |  | 1,834 |    
|                              |          |                           |       |     |               |  |    |       |  








|    |                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------
|(1) | Development costs incurred exclude actual retirement
    expenditures and include asset retirement obligation incurred.
|   
|(2) | Property acquisition costs related to corporate acquisitions for
    proved properties were $98 million.               
|   
|(3) | Property acquisition costs related to corporate acquisitions for
    unproved properties were $40 million.             
|   
|(4) | Property acquisition costs related to corporate acquisitions for
    proved properties were $517 million.              
|   
|(5) | Property acquisition costs related to corporate acquisitions for
    unproved properties were $54 million.             







25



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##### Table of Contents







|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |     |    |  |  |     |     | 
|--------------------- | ------------- | ------------ | ----- | ----- | ---- |  | ----- | ---- |  | -------- | ---- | --- |  | ---- | --- | -- |  |  | --- | --- | 
|                      |               |              |       |       |      |  |       |      |  | Prior to |     
|Withheld Costs        |               | Total        |       |       | 2005 |  |       | 2004 |  |          | 2003 |     |  | 2003 |    
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|                      |               | ($ millions) |      
|Property acquisitions |               |              |       |       |      |  |       |      |  |          |      |     |  |      |     |    |  |  |     |    
|                      | Canada        |              |       | 301   |      |  |       | 54   |  |          |      |    |  |      |     | 56 |  |  |     | 191 | 
|                      | International |              |       | 75    |      |  |       |     |  |          |      | 62  |  |      |     |   |  |  |     | 13  | 
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|                      |               |              | 376   |       |      |  | 54    |      |  |          | 62   |     |  |      | 56  |    |  |  | 204 |    
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|Exploration           |               |              |       |       |      |  |       |      |  |          |      |     |  |      |     |    |  |  |     |    
|                      | Canada        |              |       | 417   |      |  |       | 279  |  |          |      | 96  |  |      |     | 42 |  |  |     |    | 
|                      | International |              |       | 37    |      |  |       | 22   |  |          |      | 13  |  |      |     | 2  |  |  |     |    | 
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|                      |               |              | 454   |       |      |  | 301   |      |  |          | 109  |     |  |      | 44  |    |  |  |    |    
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|Development           |               |              |       |       |      |  |       |      |  |          |      |     |  |      |     |    |  |  |     |    
|                      | Canada        |              |       | 1,213 |      |  |       | 826  |  |          |      | 294 |  |      |     | 93 |  |  |     |    | 
|                      | International |              |       | 15    |      |  |       | 6    |  |          |      | 1   |  |      |     | 1  |  |  |     | 7   | 
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|                      |               |              | 1,228 |       |      |  | 832   |      |  |          | 295  |     |  |      | 94  |    |  |  | 7   |    
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|Capitalized interest  |               |              |       |       |      |  |       |      |  |          |      |     |  |      |     |    |  |  |     |    
|                      | Canada        |              |       | 385   |      |  |       | 112  |  |          |      | 75  |  |      |     | 52 |  |  |     | 146 | 
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    
|                      |               |              | 2,443 |       |      |  | 1,299 |      |  |          | 541  |     |  |      | 246 |    |  |  | 357 |    
|                      |               |              |       |       |      |  |       |      |  |          |      |     |  |      |    

Capitalized Costs Relating to Oil and Gas Producing
Activities


|                             |  |              |        |  |               |  |     |       |  |  |        | 
|---------------------------- |  | ------------ | ------ |  | ------------- |  | --- | ----- |  |  | ------ | 
|                             |  | Canada       |        |  | International |  |     | Total | 
|                             |  |              |        |  |               |  |     |       | 
|                             |  | ($ millions) |       
|2005                         |  |              |        |  |               |  |     |       |  |  |        | 
|Proved properties            |  |              | 16,195 |  |               |  | 528 |       |  |  | 16,723 | 
|Unproved properties          |  |              | 2,317  |  |               |  | 127 |       |  |  | 2,444  | 
|                             |  |              |        |  |               |  |     |       | 
|                             |  |              | 18,512 |  |               |  | 655 |       |  |  | 19,167 | 
|Accumulated DD&A             |  |              | 6,729  |  |               |  | 354 |       |  |  | 7,083  | 
|                             |  |              |        |  |               |  |     |       | 
|Net Capitalized
    Costs(2) |  |              | 11,783 |  |               |  | 301 |       |  |  | 12,084 | 
|                             |  |              |        |  |               |  |     |       | 
|2004                         |  |              |        |  |               |  |     |       |  |  |        | 
|Proved properties            |  |              | 13,624 |  |               |  | 458 |       |  |  | 14,082 | 
|Unproved properties          |  |              | 2,399  |  |               |  | 129 |       |  |  | 2,528  | 
|                             |  |              |        |  |               |  |     |       | 
|                             |  |              | 16,023 |  |               |  | 587 |       |  |  | 16,610 | 
|Accumulated DD&A             |  |              | 5,722  |  |               |  | 311 |       |  |  | 6,033  | 
|                             |  |              |        |  |               |  |     |       | 
|Net Capitalized
    Costs(2) |  |              | 10,301 |  |               |  | 276 |       |  |  | 10,577 | 
|                             |  |              |        |  |               |  |     |       | 
|2003                         |  |              |        |  |               |  |     |       |  |  |        | 
|Proved properties            |  |              | 12,017 |  |               |  | 449 |       |  |  | 12,466 | 
|Unproved properties          |  |              | 1,814  |  |               |  | 54  |       |  |  | 1,868  | 
|                             |  |              |        |  |               |  |     |       | 
|                             |  |              | 13,831 |  |               |  | 503 |       |  |  | 14,334 | 
|Accumulated DD&A             |  |              | 4,718  |  |               |  | 252 |       |  |  | 4,970  | 
|                             |  |              |        |  |               |  |     |       | 
|Net Capitalized
    Costs(2) |  |              | 9,113  |  |               |  | 251 |       |  |  | 9,364  | 
|                             |  |              |        |  |               |  |     |       | 








|    |                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Capitalized costs related to proved properties include the asset
    retirement obligations. The asset retirement obligations for the
    years presented were as follows:

26



---



##### Table of Contents



|     |  |        |     |  |               |  |   |       |  |  |     | 
|---- |  | ------ | --- |  | ------------- |  | - | ----- |  |  | --- | 
|     |  | Canada |     |  | International |  |   | Total | 
|     |  |        |     |  |               |  |   |       | 
|2005 |  |        | 377 |  |               |  | 6 |       |  |  | 383 | 
|2004 |  |        | 314 |  |               |  | 6 |       |  |  | 320 | 
|2003 |  |        | 223 |  |               |  | 7 |       |  |  | 230 | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The net capitalized costs for Canadian oil and gas exploration,
    development and producing activities under U.S. GAAP for
    2005 was $11,290 million (2004 
    $9,721 million, 2003  $8,518 million). The
    net capitalized costs for International property oil and
    gas exploration, development and producing activities under
    U.S. GAAP for 2005 was $300 million (2004 
    $274 million, 2003  $249 million). Please
    refer to note 19 to the Consolidated Financial Statements
    for an explanation of the differences between Canadian and
    U.S. GAAP for oil and gas activities.

Oil and Gas Reserve Information




|                                                |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         |  |     |      |   |  |       |       |  
|----------------------------------------------- | -------------------------- | --------- | --- | ---- | ------------- |  | ----- | --------- | - |  | ------- | -- | - | --------- | --- | ---- | ------- |  | --- | ---- | - |  | ----- | ----- | -
|                                                |                            | Canada    |     |      | International |  |       | Total     |  
|                                                |                            |           |     |      |               |  |       |           |  
|                                                |                            | Crude Oil |     |      | Natural       |  |       | Crude Oil |   |  | Natural |    |   | Crude Oil |     |      | Natural | 
|Reserves                                        |                            | & NGL     |     |      | Gas           |  |       | & NGL     |   |  | Gas     |    |   | & NGL     |     |      | Gas     | 
|                                                |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         | 
|                                                |                            | (mmbbls)  |     |      | (bcf)         |  |       | (mmbbls)  |   |  | (bcf)   |    |   | (mmbbls)  |     |      | (bcf)   | 
|Net proved
    reserves(1)(2)(3)(4)             |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         |  |     |      |   |  |       |      
|End of 2002                                     |                            |           | 468 |      |               |  | 1,612 |           |   |  | 33      |    |   |           | 101 |      |         |  | 501 |      |   |  | 1,713 |      
|                                                | Revisions                  |           |     | 19   |               |  |       | (89       | ) |  |         | (3 | ) |           |     | (101 | )       |  |     | 16   |   |  |       | (190  | )
|                                                | Purchases                  |           |     | 9    |               |  |       | 146       |   |  |         |   |   |           |     |     |         |  |     | 9    |   |  |       | 146   |  
|                                                | Sales                      |           |     | (4   | )             |  |       | (16       | ) |  |         |   |   |           |     |     |         |  |     | (4   | ) |  |       | (16   | )
|                                                | Discoveries and extensions |           |     | 31   |               |  |       | 245       |   |  |         |   |   |           |     |     |         |  |     | 31   |   |  |       | 245   |  
|                                                | Improved recovery          |           |     | 1    |               |  |       | 1         |   |  |         |   |   |           |     |     |         |  |     | 1    |   |  |       | 1     |  
|                                                | Production                 |           |     | (61  | )             |  |       | (182      | ) |  |         | (8 | ) |           |     |     |         |  |     | (69  | ) |  |       | (182  | )
|                                                |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         | 
|End of 2003                                     |                            |           | 463 |      |               |  | 1,717 |           |   |  | 22      |    |   |           |    |      |         |  | 485 |      |   |  | 1,717 |      
|                                                | Revisions                  |           |     | (105 | )             |  |       | (54       | ) |  |         | 2  |   |           |     |     |         |  |     | (103 | ) |  |       | (54   | )
|                                                | Purchases                  |           |     | 1    |               |  |       | 17        |   |  |         |   |   |           |     |     |         |  |     | 1    |   |  |       | 17    |  
|                                                | Sales                      |           |     | (1   | )             |  |       | (12       | ) |  |         |   |   |           |     |     |         |  |     | (1   | ) |  |       | (12   | )
|                                                | Discoveries and extensions |           |     | 55   |               |  |       | 309       |   |  |         |    |   |           |     |     |         |  |     | 55   |   |  |       | 309   |  
|                                                | Improved recovery          |           |     | 6    |               |  |       | 3         |   |  |         |   |   |           |     |     |         |  |     | 6    |   |  |       | 3     |  
|                                                | Production                 |           |     | (62  | )             |  |       | (192      | ) |  |         | (6 | ) |           |     |     |         |  |     | (68  | ) |  |       | (192  | )
|                                                |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         | 
|End of 2004                                     |                            |           | 357 |      |               |  | 1,788 |           |   |  | 18      |    |   |           |    |      |         |  | 375 |      |   |  | 1,788 |      
|                                                | Revisions                  |           |     | 129  |               |  |       | (75       | ) |  |         | 2  |   |           |     |     |         |  |     | 131  |   |  |       | (75   | )
|                                                | Purchases                  |           |     | 6    |               |  |       | 2         |   |  |         |   |   |           |     |     |         |  |     | 6    |   |  |       | 2     |  
|                                                | Sales                      |           |     | (7   | )             |  |       | (7        | ) |  |         |   |   |           |     |     |         |  |     | (7   | ) |  |       | (7    | )
|                                                | Discoveries and extensions |           |     | 94   |               |  |       | 230       |   |  |         | 1  |   |           |     |     |         |  |     | 95   |   |  |       | 230   |  
|                                                | Improved recovery          |           |     | 29   |               |  |       | 6         |   |  |         |   |   |           |     |     |         |  |     | 29   |   |  |       | 6     |  
|                                                | Production                 |           |     | (59  | )             |  |       | (173      | ) |  |         | (5 | ) |           |     |     |         |  |     | (64  | ) |  |       | (173  | )
|                                                |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         | 
|End of 2005                                     |                            |           | 549 |      |               |  | 1,771 |           |   |  | 16      |    |   |           |    |      |         |  | 565 |      |   |  | 1,771 |      
|                                                |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         | 
|Net proved developed reserves,
    (1)(2)(3)(4) |                            |           |     |      |               |  |       |           |   |  |         |    |   |           |     |      |         |  |     |      |   |  |       |      
|                                                | End of year 2002           |           |     | 361  |               |  |       | 1,273     |   |  |         | 28 |   |           |     |     |         |  |     | 389  |   |  |       | 1,273 |  
|                                                | End of year 2003           |           |     | 372  |               |  |       | 1,423     |   |  |         | 23 |   |           |     |     |         |  |     | 395  |   |  |       | 1,423 |  
|                                                | End of year 2004           |           |     | 299  |               |  |       | 1,436     |   |  |         | 18 |   |           |     |     |         |  |     | 317  |   |  |       | 1,436 |  
|                                                | End of year 2005           |           |     | 327  |               |  |       | 1,413     |   |  |         | 15 |   |           |     |     |         |  |     | 342  |   |  |       | 1,413 |  








|    |                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net reserves are the Companys lessor royalty, overriding
    royalty and working interest share of the gross remaining
    reserves, after deduction of any crown, freehold and overriding
    royalties. Such royalties are subject to change by legislation
    or regulation and can also vary depending on production rates,
    selling prices and timing of initial production.
|   
|(2) | Reserves are the estimated quantities of crude oil, natural gas
    and related substances anticipated from geological and
    engineering data to be recoverable from known accumulations from
    a given date forward, by known technology, under existing
    operating conditions and prices in effect at year end.                                                              
|   
|(3) | Proved oil and gas reserves are the estimated quantities of
    crude oil, natural gas and natural gas liquids which geological
    and engineering data demonstrate with reasonable certainty to be
    recoverable in future years from known reservoirs under existing
    economic and operating conditions.                                                                      

27



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|    |                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Proved developed oil and gas reserves are reserves that can be
    expected to be recovered through existing wells with existing
    equipment and operating methods. Proved undeveloped reserves are
    reserves that are expected to be recovered from known
    accumulations where a significant expenditure is required.

Standardized Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves






|                                   |                                         |           |        |        |                  |  |        |              |  |  |        |       |  |      |     |     |      |  |     |      |  |  |      |     |  |      |        |        |  |  |        |       |  |  |        |       | 
|---------------------------------- | --------------------------------------- | --------- | ------ | ------ | ---------------- |  | ------ | ------------ |  |  | ------ | ----- |  | ---- | --- | --- | ---- |  | --- | ---- |  |  | ---- | --- |  | ---- | ------ | ------ |  |  | ------ | ----- |  |  | ------ | ----- | 
|                                   |                                         | Canada(1) |        |        | International(1) |  |        | Total(1)     | 
|                                   |                                         |           |        |        |                  |  |        |              | 
|Standardized Measure               |                                         | 2005      |        |        | 2004             |  |        | 2003         |  |  | 2005   |       |  | 2004 |     |     | 2003 |  |     | 2005 |  |  | 2004 |     |  | 2003 |       
|                                   |                                         |           |        |        |                  |  |        |              |  |  |        |       |  |      |     |     |      |  |     |      |  |  |      |     |  |      |       
|                                   |                                         |           |        |        |                  |  |        | ($ millions) |  |  |        |       |  |      |     |     |     
|Future cash inflows                |                                         |           | 40,066 |        |                  |  | 22,681 |              |  |  | 24,003 |       |  |      | 999 |     |      |  | 979 |      |  |  | 928  |     |  |      | 41,065 |        |  |  | 23,660 |       |  |  | 24,931 |      
|                                   | Future production and development costs |           |        | 13,430 |                  |  |        | 9,353        |  |  |        | 8,645 |  |      |     | 122 |      |  |     | 148  |  |  |      | 146 |  |      |        | 13,552 |  |  |        | 9,501 |  |  |        | 8,791 | 
|                                   | Future income taxes                     |           |        | 9,000  |                  |  |        | 4,871        |  |  |        | 5,696 |  |      |     | 272 |      |  |     | 266  |  |  |      | 247 |  |      |        | 9,272  |  |  |        | 5,137 |  |  |        | 5,943 | 
|                                   |                                         |           |        |        |                  |  |        |              |  |  |        |       |  |      |     |     |      |  |     |      |  |  |      |     |  |      |       
|Future net cash flows              |                                         |           | 17,636 |        |                  |  | 8,457  |              |  |  | 9,662  |       |  |      | 605 |     |      |  | 565 |      |  |  | 535  |     |  |      | 18,241 |        |  |  | 9,022  |       |  |  | 10,197 |      
|Annual 10 percent discount factor  |                                         |           | 7,115  |        |                  |  | 3,712  |              |  |  | 4,242  |       |  |      | 123 |     |      |  | 105 |      |  |  | 117  |     |  |      | 7,238  |        |  |  | 3,817  |       |  |  | 4,359  |      
|                                   |                                         |           |        |        |                  |  |        |              |  |  |        |       |  |      |     |     |      |  |     |      |  |  |      |     |  |      |       
|Standardized measure of discounted |                                         |           |        |        |                  |  |        |              |  |  |        |       |  |      |     |     |      |  |     |      |  |  |      |     |  |      |        |        |  |  |        |       |  |  |        |      
|Future net cash flows              |                                         |           | 10,521 |        |                  |  | 4,745  |              |  |  | 5,420  |       |  |      | 482 |     |      |  | 460 |      |  |  | 418  |     |  |      | 11,003 |        |  |  | 5,205  |       |  |  | 5,838  |      
|                                   |                                         |           |        |        |                  |  |        |              |  |  |        |       |  |      |     |     |      |  |     |      |  |  |      |     |  |      |       

Changes in Standardized Measure


|                                                                                     |  |              |        |   |                  |  |        |          |  |  |        |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |        |   |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------------ |  | ------------ | ------ | - | ---------------- |  | ------ | -------- |  |  | ------ | - |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | - |  | ---- | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                                                                     |  | Canada(1)    |        |   | International(1) |  |        | Total(1) | 
|                                                                                     |  |              |        |   |                  |  |        |          | 
|                                                                                     |  | 2005         |        |   | 2004             |  |        | 2003     |  |  | 2005   |   |  | 2004 |      |   | 2003 |  |      | 2005 |  |  | 2004 |   |  | 2003 |       
|                                                                                     |  |              |        |   |                  |  |        |          |  |  |        |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|                                                                                     |  | ($ millions) |       
|Present value at January 1                                                           |  |              | 4,745  |   |                  |  | 5,420  |          |  |  | 6,347  |   |  |      | 460  |   |      |  | 418  |      |  |  | 839  |   |  |      | 5,205  |   |  |  | 5,838  |   |  |  | 7,186  |  
|Sales and transfers, net of production costs                                         |  |              | (3,101 | ) |                  |  | (1,952 | )        |  |  | (2,097 | ) |  |      | (320 | ) |      |  | (294 | )    |  |  | (293 | ) |  |      | (3,421 | ) |  |  | (2,246 | ) |  |  | (2,390 | )
|Net change in sales and transfer prices, net of development and
    production costs |  |              | 5,585  |   |                  |  | 555    |          |  |  | (1,379 | ) |  |      | 155  |   |      |  | 197  |      |  |  | (376 | ) |  |      | 5,740  |   |  |  | 752    |   |  |  | (1,755 | )
|Extensions, discoveries and improved recovery, net of related
    costs              |  |              | 2,027  |   |                  |  | 958    |          |  |  | 541    |   |  |      | 24   |   |      |  |     |      |  |  |     |   |  |      | 2,051  |   |  |  | 958    |   |  |  | 541    |  
|Revisions of quantity estimates                                                      |  |              | 2,310  |   |                  |  | (1,318 | )        |  |  | 76     |   |  |      | 110  |   |      |  | 85   |      |  |  | (97  | ) |  |      | 2,420  |   |  |  | (1,233 | ) |  |  | (21    | )
|Accretion of discount                                                                |  |              | 762    |   |                  |  | 877    |          |  |  | 1,055  |   |  |      | 68   |   |      |  | 61   |      |  |  | 130  |   |  |      | 830    |   |  |  | 938    |   |  |  | 1,185  |  
|Sale of reserves in place                                                            |  |              | (62    | ) |                  |  | (20    | )        |  |  | (47    | ) |  |      |     |   |      |  |     |      |  |  |     |   |  |      | (62    | ) |  |  | (20    | ) |  |  | (47    | )
|Purchase of reserves in place                                                        |  |              | 36     |   |                  |  | 45     |          |  |  | 304    |   |  |      |     |   |      |  |     |      |  |  |     |   |  |      | 36     |   |  |  | 45     |   |  |  | 304    |  
|Changes in timing of future net cash flows and other                                 |  |              | 826    |   |                  |  | (233   | )        |  |  | (237   | ) |  |      | (13  | ) |      |  | 17   |      |  |  | (49  | ) |  |      | 813    |   |  |  | (216   | ) |  |  | (286   | )
|Net change in income taxes                                                           |  |              | (2,607 | ) |                  |  | 413    |          |  |  | 857    |   |  |      | (2   | ) |      |  | (24  | )    |  |  | 264  |   |  |      | (2,609 | ) |  |  | 389    |   |  |  | 1,121  |  
|                                                                                     |  |              |        |   |                  |  |        |          |  |  |        |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       
|Net increase (decrease)                                                              |  |              | 5,776  |   |                  |  | (675   | )        |  |  | (927   | ) |  |      | 22   |   |      |  | 42   |      |  |  | (421 | ) |  |      | 5,798  |   |  |  | (633   | ) |  |  | (1,348 | )
|Present value at December 31                                                         |  |              | 10,521 |   |                  |  | 4,745  |          |  |  | 5,420  |   |  |      | 482  |   |      |  | 460  |      |  |  | 418  |   |  |      | 11,003 |   |  |  | 5,205  |   |  |  | 5,838  |  
|                                                                                     |  |              |        |   |                  |  |        |          |  |  |        |   |  |      |      |   |      |  |      |      |  |  |      |   |  |      |       








|    |                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The schedules above are calculated using year-end prices, costs,
    statutory income tax rates and existing proved oil and gas
    reserves. The value of exploration properties and probable
    reserves, future exploration costs, future changes in oil and
    gas prices and in production and development costs are excluded.

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INDEPENDENT ENGINEERS AUDIT OPINION


January 23, 2006


Husky Energy Inc.


th
















McDaniel & Associates


Consultants Ltd.


P.A. Welch









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REPORT ON RESERVES DATA BY QUALIFIED RESERVES EVALUATOR








|   |                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------
|1. | Our staff has evaluated the Companys reserves data as at
    December 31, 2005. The reserves data consists of the
    following:



| |     |                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------
| | (a) | proved oil and gas reserve quantities estimated as at
    December 31, 2005 using constant prices and costs; and
|
| | (b) | the related standardized measure of discounted future net cash
    flows.                                       



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | The oil and gas reserves data are the responsibility of the
    Companys management. As the Corporate Representatives our
    responsibility is to certify that the reserves data has been
    properly calculated in accordance with generally accepted
    procedures for the estimation of reserves data.                                                                                                                                                                                                                                                                                                                                                            
|  
|3. | We carried out our evaluation in accordance with generally
    accepted procedures for the estimation of oil and gas reserves
    data and standards set out in the Canadian Oil and Gas
    Evaluation Handbook (the COGEH) with the necessary
    modifications to reflect definitions and standards under the
    applicable U.S. Financial Accounting Standards Board standards
    (the FASB Standards) and the legal requirements of
    the U.S. Securities and Exchange Commission (SEC
    Requirements). Our internal reserves evaluators are not
    independent of the Company, within the meaning of the term
    independent under those standards.
|  
|4. | Those standards require that we plan and perform an evaluation
    to obtain reasonable assurance as to whether the oil and gas
    reserves data are free of material misstatement. An evaluation
    also includes assessing whether the reserves data are in
    accordance with principles and definitions presented in the
    COGEH as modified or replaced by the FASB standards and SEC
    requirements.                                                                                                                                                                                                                                                        
|  
|5. | The following sets forth the estimated standardized measure of
    discounted future net cash flows (before deducting income taxes)
    attributed to proved oil and gas reserve quantities, estimated
    using constant prices and costs and calculated using a discount
    rate of 10 percent, included in the reserves data of the
    Company evaluated for the year ended December 31, 2005:                                                                                                                                                                                                                                                                      

|                                     |  |                                          |        | 
|------------------------------------ |  | ---------------------------------------- | ------ | 
|                                     |  | Discounted Future Net Cash Flows         |       
|Location of Reserves                 |  | (Before Income Taxes, 10% Discount Rate) |       
|                                     |  |                                          |       
|(country or foreign geographic area) |  | ($ millions)                             |       
|Canada                               |  |                                          | 16,005 | 
|China                                |  |                                          | 688    | 
|Libya                                |  |                                          | 12     | 
|                                     |  |                                          |       
|                                     |  |                                          | 16,705 | 
|                                     |  |                                          |       



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have filed the Companys oil and gas reserves
    disclosures in accordance with Financial Accounting Standards
    Board Statement No. 69 Disclosures about Oil and Gas
    Producing Activities concurrently with this form.



|   |                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | In our opinion, the oil and gas reserves data evaluated by us
    have, in all material respects, been determined in accordance
    with principles and definitions presented in the COGEH as
    modified or replaced by the FASB Standards and SEC Requirements.
|  
|7. | We have no responsibility to update our evaluation for events
    and circumstances occurring after the date of this report.                                                                                                                                      
|  
|8. | Oil and gas reserves are estimates only, and not exact
    quantities. In addition, the oil and gas reserves data are based
    on judgements regarding future events, actual results will vary
    and the variations may be material.                           





Preston Kraft P. Eng









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REPORT OF MANAGEMENT AND DIRECTORS ON RESERVES DATA AND OTHER
INFORMATION






| |     |                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------
| | (1) | proved oil and gas reserve quantities estimated as at
    December 31, 2005 using constant prices and costs; and
|
| | (2) | the related standardized measure of discounted future net cash
    flows.                                       







| |     |                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | reviewed Huskys procedures for providing information to
    the internal and external qualified oil and gas reserves
    evaluators;                                                                                                                                       
|
| | (b) | met with the internal and, if applicable, external qualified oil
    and gas reserves evaluator(s) to determine whether any
    restrictions placed by management affect the ability of the
    internal qualified reserves evaluator to report without
    reservation; and
|
| | (c) | reviewed the reserves data with management and the internal
    qualified oil and gas reserves evaluator.                                                                                                                                                                   





| |     |                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------
| | (a) | the content and filing with securities regulatory authorities of
    the reserves data and other oil and gas information;
|
| | (b) | the filing of the Report on Reserves Data of the Manager of
    Reservoir Engineering; and                               
|
| | (c) | the content and filing of this report.                                                                                   









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|                                                                                      |  |                |  | 
|------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                                                                     
|/s/ John C.S. LauJohn C. S. Lau
    President & Chief Executive Officer               |  | March 14, 2006
|                                                                                     
|/s/ James D. GirgulisJames D. Girgulis
    Vice President Legal & Corporate Secretary |  | March 14, 2006
|                                                                                     
|/s/ R. Donald FullertonR. Donald Fullerton
    Director                               |  | March 14, 2006
|                                                                                     
|/s/ Wayne E. ShawWayne E. Shaw
    Director                                           |  | March 14, 2006

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Description of Major Properties and Facilities




Lloydminster Heavy Oil and Gas












34



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Lloydminster Area





British Columbia Foothills/ Northwest Plains


Rainbow Lake Area




2008-2010




35



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Slave Lake Area




High Level Area




Athabasca Area




Ram River Area








36



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Kaybob Area






Alberta/ British Columbia Plains


Boundary Lake Area




Valhalla and Wapiti Area




Kakwa Area




Lynx and Copton Area




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Foothills West


Caroline Area






Edson Area




Sikanni Area




Graham Area




East Central Alberta


Craigend Area




Red Deer and Hussar Area




Provost Area




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Southern Alberta and Southern Saskatchewan


Southern Saskatchewan Area








Southern Alberta Area






39



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40



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Oil Sands


Athabasca, Cold Lake and Peace River






Tucker




Sunrise




Caribou




Saleski




41



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Oil
Sands Leases


|                                          |  |           |             |  |       |  |         |       |  |  |          |  |  |  |     | 
|----------------------------------------- |  | --------- | ----------- |  | ----- |  | ------- | ----- |  |  | -------- |  |  |  | --- | 
|                                          |  | Oil Sands |             |  | Gross |  |         | Net   |  |  | Husky    | 
|General Location Name                     |  | Area      |             |  | Acres |  |         | Acres |  |  | Operator | 
|                                          |  |           |             |  |       |  |         |       |  |  |          | 
|South Athabasca  overriding royalty      |  |           | Athabasca   |  |       |  | 35,601  |       |  |  |         |  |  |  | No  | 
|South Athabasca                           |  |           | Athabasca   |  |       |  | 22,032  |       |  |  | 11,016   |  |  |  | Yes | 
|Sunrise  In
    situ(1)                  |  |           | Athabasca   |  |       |  | 57,634  |       |  |  | 57,634   |  |  |  | Yes | 
|Misthae (Drowned, Martin Hills W. & Spur) |  |           | Athabasca   |  |       |  | 28,160  |       |  |  | 28,160   |  |  |  | Yes | 
|Saleski                                   |  |           | Athabasca   |  |       |  | 154,880 |       |  |  | 154,880  |  |  |  | Yes | 
|Hoole  overriding royalty                |  |           | Athabasca   |  |       |  | 47,040  |       |  |  |         |  |  |  | No  | 
|Beaverdam                                 |  |           | Cold Lake   |  |       |  | 11,520  |       |  |  | 11,520   |  |  |  | Yes | 
|Caribou(2)                                |  |           | Cold Lake   |  |       |  | 35,840  |       |  |  | 35,840   |  |  |  | Yes | 
|Lobstick                                  |  |           | Cold Lake   |  |       |  | 37,120  |       |  |  | 37,120   |  |  |  | Yes | 
|Tucker(3)                                 |  |           | Cold Lake   |  |       |  | 10,080  |       |  |  | 10,080   |  |  |  | Yes | 
|Panny (Senex & Welstead)                  |  |           | Peace River |  |       |  | 47,360  |       |  |  | 47,360   |  |  |  | Yes | 
|Peace River (Cadotte Lake)                |  |           | Peace River |  |       |  | 11,840  |       |  |  | 11,840   |  |  |  | Yes | 
|Sawn Lake (Loon)                          |  |           | Peace River |  |       |  | 20,480  |       |  |  | 20,480   |  |  |  | Yes | 
|                                          |  |           |             |  |       |  |         |       |  |  |          | 
|                                          |  |           |             |  |       |  | 519,587 |       |  |  | 425,930  |  |  |  |     | 
|                                          |  |           |             |  |       |  |         |       |  |  |          | 








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Not included in the gross and net amounts are an additional
    6,400 acres of petroleum and natural gas rights held as
    protection acreage for gas over bitumen issues. In 2003, the
    Alberta regulatory authority issued General Bulletin GB
    2003-28 that required
    natural gas wells within certain bitumen prone areas to be
    shut-in. The production of natural gas where natural gas
    reservoirs were believed to be in pressure contact with bitumen
    reserves was deemed to present an unacceptable risk to future
    in-situ bitumen production. Sunrise was formerly named Kearl.
|   
|(2) | Husky also has the exclusive right to acquire an additional
    65,280 acres in the Caribou area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | Not included in the gross and net amounts are an additional
    1,280 acres of petroleum and natural gas rights held as
    protection acreage for gas over bitumen issues.                                                                                                                                                                                                                                                                                                                                                                                                                                       

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43



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Offshore East Coast  Canada




3-D


G-85


Terra Nova Oilfield






White Rose Oilfield




SeaRose FPSO 48-hour SeaRose FPSO SeaRose FPSO


SeaRose FPSO Heather Knutsen Jasmine Knutsen,


44



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SeaRose FPSO.








45



---



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East Coast





46



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International




South China Sea


Wenchang


13-1 13-2


Block
39/05


39-05 8-1-1 39-05. 39-05


Blocks
23/15 and 23/20


23-15 23-20 23-15 23-20 3-D 23-15. 23-15 17-1-1 WS17-1-1 23-20 32-1-1 WS32-1-1


Block
29/26


29-26


Block
40/30


13-1 13-2 12-1-1. 12-1-1 CC12- 1-1


47



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East China Sea


Block
04/35


04-35


China





48



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Madura Strait, Indonesia







Shatirah, Libya







Distribution of Oil and Gas Production


Crude Oil and NGL






49



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Natural Gas




|                     |               |              |     |     |      |  |     |      |  |  |     |     | 
|-------------------- | ------------- | ------------ | --- | --- | ---- |  | --- | ---- |  |  | --- | --- | 
|                     |               | Years ended  |    
|                     |               | December 31, |    
|                     |               |              |    
|                     |               | 2005         |     |     | 2004 |  |     | 2003 | 
|                     |               |              |     |     |      |  |     |      | 
|                     |               | (mmcf/day)   |    
|Sales to end users   |               |              |     |     |      |  |     |      |  |  |     |    
|                     | United States |              |     | 357 |      |  |     | 407  |  |  |     | 382 | 
|                     | Canada        |              |     | 212 |      |  |     | 187  |  |  |     | 156 | 
|                     |               |              |     |     |      |  |     |      | 
|                     |               |              | 569 |     |      |  | 594 |      |  |  | 538 |    
|                     |               |              |     |     |      |  |     |      | 
|Sales to aggregators |               |              | 31  |     |      |  | 34  |      |  |  | 43  |    
|Internal
    use(1)  |               |              | 80  |     |      |  | 61  |      |  |  | 30  |    
|                     |               |              |     |     |      |  |     |      | 
|                     |               |              | 680 |     |      |  | 689 |      |  |  | 611 |    
|                     |               |              |     |     |      |  |     |      | 








|    |                                                                  
|--- | -----------------------------------------------------------------
|(1) | Husky consumes natural gas for fuel at several of its facilities.



Delivery
Commitments




|     |  |             |      |  |              |  |      |     |  |  |      | 
|---- |  | ----------- | ---- |  | ------------ |  | ---- | --- |  |  | ---- | 
|     |  | Fixed Price |      |  | Market Price | 
|     |  |             |      |  |              | 
|     |  | Bcf         |      |  | $/mmbtu      |  |      | Bcf | 
|     |  |             |      |  |              |  |      |     | 
|2006 |  |             | 25.9 |  |              |  | 3.98 |     |  |  | 19.7 | 
|2007 |  |             | 20.4 |  |              |  | 4.51 |     |  |  | 19.7 | 
|2008 |  |             | 20.4 |  |              |  | 4.75 |     |  |  | 11.8 | 
|2009 |  |             | 20.4 |  |              |  | 5.00 |     |  |  | 0.9  | 
|2010 |  |             | 20.4 |  |              |  | 5.28 |     |  |  | 0.5  | 
|2011 |  |             | 20.4 |  |              |  | 5.57 |     |  |  |     | 
|2012 |  |             | 20.0 |  |              |  | 5.47 |     |  |  |     | 
|2013 |  |             | 20.0 |  |              |  | 3.67 |     |  |  |     | 
|2014 |  |             | 6.2  |  |              |  | 3.67 |     |  |  |     | 




Midstream Operations


Overview






| |   |                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Upgrading  the upgrading of heavy crude oil into
    synthetic light crude oil;                                                                                                                                              
|
| |  | Infrastructure  pipeline transportation and
    processing of heavy crude oil, storage of crude oil, diluent,
    and natural gas, extraction of NGL from natural gas,
    cogeneration of electrical and thermal energy; and
|
| |  | Commodity Marketing  the purchase and marketing of
    Huskys and other producers crude oil, natural gas,
    NGL, sulphur, petroleum coke and electrical power.                                                           

Upgrading Operations






50



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##### Table of Contents









Infrastructure


Heavy Oil Pipeline Systems and Processing Facilities






|                             |  |                          |     |  |      |  |     |      |  |  |     | 
|---------------------------- |  | ------------------------ | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                             |  | Years ended December 31, |    
|                             |  |                          |    
|                             |  | 2005                     |     |  | 2004 |  |     | 2003 | 
|                             |  |                          |     |  |      |  |     |      | 
|                             |  | (mbbls/day)              |    
|Combined pipeline throughput |  |                          | 474 |  |      |  | 492 |      |  |  | 484 | 







51



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##### Table of Contents



Heavy Oil Pipeline Systems





52



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##### Table of Contents



Cogeneration






Natural Gas Storage Facilities




Commodity Marketing













Refined Products


Overview






53



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##### Table of Contents



Branded Petroleum Product Outlets and Commercial
Distribution


Distribution




Retail Marketing System


Branded Petroleum Product Outlets


Branded Petroleum Outlets







54



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##### Table of Contents







|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       |  |  |     |  |  |  |     | 
|------------------------- |  | ---------- | --- |  | ------- |  | --- | ----- |  |  | -------- |  |  | ------- | ---- |  | ----- |  | -- | ----- |  |  | --- |  |  |  | --- | 
|                          |  | British    |     |  |         |  |     |       |  |  |          |  |  |         |     
|                          |  | Columbia & |     |  |         |  |     |       |  |  |          |  |  |         | 2004 | 
|Retail Outlets            |  | Yukon      |     |  | Alberta |  |     | Sask. |  |  | Manitoba |  |  | Ontario |      |  | Total |  |    | Total | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|Travel Centres            |  |            | 9   |  |         |  | 8   |       |  |  | 4        |  |  |         | 2    |  |       |  | 13 |       |  |  | 36  |  |  |  | 36  | 
|Full Serve                |  |            | 10  |  |         |  | 15  |       |  |  | 2        |  |  |         | 2    |  |       |  | 2  |       |  |  | 31  |  |  |  | 37  | 
|Full/ Self Serve          |  |            | 16  |  |         |  | 25  |       |  |  | 6        |  |  |         | 11   |  |       |  | 3  |       |  |  | 61  |  |  |  | 59  | 
|Self Serve                |  |            | 18  |  |         |  | 12  |       |  |  | 1        |  |  |         | 1    |  |       |  | 1  |       |  |  | 33  |  |  |  | 34  | 
|Bulk Distributor          |  |            | 1   |  |         |  | 7   |       |  |  | 4        |  |  |         | 1    |  |       |  | 1  |       |  |  | 14  |  |  |  | 14  | 
|Card/ Key Locks           |  |            | 2   |  |         |  | 7   |       |  |  | 0        |  |  |         | 0    |  |       |  | 1  |       |  |  | 10  |  |  |  | 10  | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|                          |  |            | 56  |  |         |  | 74  |       |  |  | 17       |  |  |         | 17   |  |       |  | 21 |       |  |  | 185 |  |  |  | 190 | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|Leased                    |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       |  |  |     |  |  |  |     | 
|Travel Centres            |  |            | 1   |  |         |  | 0   |       |  |  | 0        |  |  |         | 0    |  |       |  | 0  |       |  |  | 1   |  |  |  | 1   | 
|Full Serve                |  |            | 3   |  |         |  | 8   |       |  |  | 5        |  |  |         | 4    |  |       |  | 0  |       |  |  | 20  |  |  |  | 24  | 
|Full/ Self Serve          |  |            | 14  |  |         |  | 22  |       |  |  | 4        |  |  |         | 6    |  |       |  | 0  |       |  |  | 46  |  |  |  | 46  | 
|Self Serve                |  |            | 31  |  |         |  | 22  |       |  |  | 0        |  |  |         | 1    |  |       |  | 0  |       |  |  | 54  |  |  |  | 52  | 
|Bulk Distributor          |  |            | 3   |  |         |  | 0   |       |  |  | 0        |  |  |         | 0    |  |       |  | 0  |       |  |  | 3   |  |  |  | 3   | 
|Card/ Key Locks           |  |            | 3   |  |         |  | 2   |       |  |  | 0        |  |  |         | 3    |  |       |  | 2  |       |  |  | 10  |  |  |  | 9   | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|                          |  |            | 55  |  |         |  | 54  |       |  |  | 9        |  |  |         | 14   |  |       |  | 2  |       |  |  | 134 |  |  |  | 135 | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|Independent Retailers     |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       |  |  |     |  |  |  |     | 
|Travel Centres            |  |            | 1   |  |         |  | 1   |       |  |  | 0        |  |  |         | 0    |  |       |  | 4  |       |  |  | 6   |  |  |  | 6   | 
|Full Serve                |  |            | 22  |  |         |  | 15  |       |  |  | 8        |  |  |         | 14   |  |       |  | 7  |       |  |  | 66  |  |  |  | 77  | 
|Full/ Self Serve          |  |            | 17  |  |         |  | 5   |       |  |  | 5        |  |  |         | 1    |  |       |  | 1  |       |  |  | 29  |  |  |  | 28  | 
|Self Serve                |  |            | 29  |  |         |  | 45  |       |  |  | 4        |  |  |         | 3    |  |       |  | 2  |       |  |  | 83  |  |  |  | 85  | 
|Bulk Distributor          |  |            | 2   |  |         |  | 4   |       |  |  | 1        |  |  |         | 0    |  |       |  | 0  |       |  |  | 7   |  |  |  | 7   | 
|Card/ Key Locks           |  |            | 1   |  |         |  | 1   |       |  |  | 0        |  |  |         | 0    |  |       |  | 3  |       |  |  | 5   |  |  |  | 3   | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|                          |  |            | 72  |  |         |  | 71  |       |  |  | 18       |  |  |         | 18   |  |       |  | 17 |       |  |  | 196 |  |  |  | 206 | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|Total                     |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       |  |  |     |  |  |  |     | 
|Travel Centres            |  |            | 11  |  |         |  | 9   |       |  |  | 4        |  |  |         | 2    |  |       |  | 17 |       |  |  | 43  |  |  |  | 43  | 
|Full Serve                |  |            | 35  |  |         |  | 38  |       |  |  | 15       |  |  |         | 20   |  |       |  | 9  |       |  |  | 117 |  |  |  | 138 | 
|Full/ Self Serve          |  |            | 47  |  |         |  | 52  |       |  |  | 15       |  |  |         | 18   |  |       |  | 4  |       |  |  | 136 |  |  |  | 133 | 
|Self Serve                |  |            | 78  |  |         |  | 79  |       |  |  | 5        |  |  |         | 5    |  |       |  | 3  |       |  |  | 170 |  |  |  | 171 | 
|Bulk Distributor          |  |            | 6   |  |         |  | 11  |       |  |  | 5        |  |  |         | 1    |  |       |  | 1  |       |  |  | 24  |  |  |  | 24  | 
|Card/ Key Locks           |  |            | 6   |  |         |  | 10  |       |  |  | 0        |  |  |         | 3    |  |       |  | 6  |       |  |  | 25  |  |  |  | 22  | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|                          |  |            | 183 |  |         |  | 199 |       |  |  | 44       |  |  |         | 49   |  |       |  | 40 |       |  |  | 515 |  |  |  | 531 | 
|                          |  |            |     |  |         |  |     |       |  |  |          |  |  |         |      |  |       |  |    |       | 
|Cardlocks(1)              |  |            | 24  |  |         |  | 18  |       |  |  | 4        |  |  |         | 6    |  |       |  | 21 |       |  |  | 73  |  |  |  | 74  | 
|Convenience
    Stores(1) |  |            | 178 |  |         |  | 183 |       |  |  | 39       |  |  |         | 46   |  |       |  | 33 |       |  |  | 479 |  |  |  | 484 | 
|Restaurants               |  |            | 11  |  |         |  | 12  |       |  |  | 4        |  |  |         | 2    |  |       |  | 16 |       |  |  | 45  |  |  |  | 45  | 








|    |                                                       
|--- | ------------------------------------------------------
|(1) | All of these are located at branded petroleum outlets.



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|                        |  |              |      |  |      |  |      |      |  |  |      | 
|----------------------- |  | ------------ | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|                        |  | Years ended  |     
|                        |  | December 31, |     
|                        |  |              |     
|                        |  | 2005         |      |  | 2004 |  |      | 2003 | 
|                        |  |              |      |  |      |  |      |      | 
|                        |  | (mbbls/day)  |     
|Gasoline                |  |              | 28.3 |  |      |  | 28.3 |      |  |  | 28.5 | 
|Diesel fuel             |  |              | 26.5 |  |      |  | 23.9 |      |  |  | 22.1 | 
|Liquefied petroleum gas |  |              | 0.9  |  |      |  | 1.1  |      |  |  | 1.2  | 
|                        |  |              |      |  |      |  |      |      | 
|                        |  |              | 55.7 |  |      |  | 53.3 |      |  |  | 51.8 | 
|                        |  |              |      |  |      |  |      |      | 



Supply


Prince George Refinery




Lloydminster Asphalt Refinery




Ethanol Manufacturing








Other Supply Arrangements




56



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##### Table of Contents





Asphalt Products














|                   |  |              |      |  |      |  |      |      |  |  |      | 
|------------------ |  | ------------ | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|                   |  | Years ended  |     
|                   |  | December 31, |     
|                   |  |              |     
|                   |  | 2005         |      |  | 2004 |  |      | 2003 | 
|                   |  |              |      |  |      |  |      |      | 
|                   |  | (mbbls/day)  |     
|Asphalt            |  |              | 13.8 |  |      |  | 14.0 |      |  |  | 12.9 | 
|Residual and other |  |              | 8.7  |  |      |  | 8.8  |      |  |  | 9.1  | 
|                   |  |              |      |  |      |  |      |      | 
|                   |  |              | 22.5 |  |      |  | 22.8 |      |  |  | 22.0 | 
|                   |  |              |      |  |      |  |      |      | 









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Human Resources




|                               |  |              |       |  |      |  |       | 
|------------------------------ |  | ------------ | ----- |  | ---- |  | ----- | 
|                               |  | December 31, |      
|                               |  |              |      
|                               |  | 2005         |       |  | 2004 | 
|                               |  |              |       |  |      | 
|Upstream                       |  |              | 2,019 |  |      |  | 1,822 | 
|Midstream                      |  |              | 367   |  |      |  | 347   | 
|Refined Products               |  |              | 385   |  |      |  | 358   | 
|Corporate and business support |  |              | 518   |  |      |  | 505   | 
|                               |  |              |       |  |      | 
|                               |  |              | 3,289 |  |      |  | 3,032 | 
|                               |  |              |       |  |      | 




DIVIDENDS




|                                         |  |      |      |  |      |   |      |      |  |   |      | 
|---------------------------------------- |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                                         |  | 2005 |      |  | 2004 |   |      | 2003 | 
|                                         |  |      |      |  |      |   |      |      | 
|Cash dividends declared per common share |  | $    | 1.65 |  |      | $ | 1.00 |      |  | $ | 1.38 | 

Dividend Policy and Restrictions




Business Corporations Act





DESCRIPTION OF CAPITAL STRUCTURE


Common Shares




Preferred Shares




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Credit Ratings Summary


|                              |                           |        |  |           |             |  |  |                    |  |  |  |                 | 
|----------------------------- | ------------------------- | ------ |  | --------- | ----------- |  |  | ------------------ |  |  |  | --------------- | 
|                              |                           | Rating |  |           | Last Review |  |  | Last Rating Change | 
|                              |                           |        |  |           |             |  |  |                    | 
|Moodys:                      |                           |        |  |           |             |  |  |                    |  |  |  |                
|                              | Outlook                   |        |  | Stable    |             |  |  | August 29, 2005    |  |  |  |                | 
|                              | Senior Unsecured Debt     |        |  | Baa2      |             |  |  | August 29, 2005    |  |  |  | April 25, 2001  | 
|                              | U.S. Senior Secured Bonds |        |  | Baa2      |             |  |  | April 30, 2004     |  |  |  | April 25, 2001  | 
|                              | Capital Securities        |        |  | Ba1       |             |  |  | August 29, 2005    |  |  |  | April 25, 2001  | 
|Standard and Poors:          |                           |        |  |           |             |  |  |                    |  |  |  |                
|                              | Outlook                   |        |  | Positive  |             |  |  | September 12, 2005 |  |  |  | October 3, 2002 | 
|                              | Senior Unsecured Debt     |        |  | BBB       |             |  |  | September 12, 2005 |  |  |  |                | 
|                              | U.S. Senior Secured Bonds |        |  | BBB       |             |  |  | August 24, 2005    |  |  |  |                | 
|                              | Capital Securities        |        |  | BB+       |             |  |  | September 12, 2005 |  |  |  |                | 
|Dominion Bond Rating Service: |                           |        |  |           |             |  |  |                    |  |  |  |                
|                              | Trend                     |        |  | Stable    |             |  |  | May 13, 2005       |  |  |  |                | 
|                              | Senior Unsecured Debt     |        |  | BBB(high) |             |  |  | May 13, 2005       |  |  |  |                | 
|                              | Capital Securities        |        |  | BBB       |             |  |  | May 13, 2005       |  |  |  |                 | 
|Fitch:                        |                           |        |  |           |             |  |  |                    |  |  |  |                
|                              | Outlook                   |        |  | Stable    |             |  |  | July 22, 2005      |  |  |  |                | 
|                              | Senior Unsecured Debt     |        |  | BBB+      |             |  |  | July 22, 2005      |  |  |  |                | 
|                              | U.S. Senior Secured Bonds |        |  | A-        |             |  |  | July 22, 2005      |  |  |  |                 | 
|                              | Capital Securities        |        |  | BBB-      |             |  |  | July 22, 2005      |  |  |  |                | 



Moodys




Standard and Poors




Dominion Bond Rating Service




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Fitch







MARKET FOR SECURITIES






|          |  |      |       |  |     |         |       |        |  |  |        | 
|--------- |  | ---- | ----- |  | --- | ------- | ----- | ------ |  |  | ------ | 
|          |  | High |       |  | Low |         |       | Volume | 
|          |  |      |       |  |     |         |       |        | 
|          |  |      |       |  |     | (000s) |      
|January   |  |      | 34.90 |  |     |         | 32.50 |        |  |  | 11,845 | 
|February  |  |      | 37.65 |  |     |         | 32.30 |        |  |  | 20,225 | 
|March     |  |      | 40.49 |  |     |         | 35.89 |        |  |  | 14,300 | 
|April     |  |      | 38.84 |  |     |         | 35.12 |        |  |  | 16,441 | 
|May       |  |      | 42.30 |  |     |         | 36.65 |        |  |  | 12,283 | 
|June      |  |      | 50.75 |  |     |         | 42.00 |        |  |  | 18,264 | 
|July      |  |      | 53.35 |  |     |         | 47.37 |        |  |  | 11,386 | 
|August    |  |      | 62.00 |  |     |         | 53.50 |        |  |  | 11,413 | 
|September |  |      | 69.95 |  |     |         | 59.00 |        |  |  | 11,722 | 
|October   |  |      | 65.79 |  |     |         | 50.50 |        |  |  | 15,936 | 
|November  |  |      | 59.95 |  |     |         | 53.63 |        |  |  | 11,028 | 
|December  |  |      | 61.60 |  |     |         | 55.58 |        |  |  | 11,767 | 

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DIRECTORS AND OFFICERS




|                                |  |                          |  |  |                 |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | 
|------------------------------- |  | ------------------------ |  |  | --------------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | 
|Name and                        |  |                          |  |  |                 | 
|Municipality of                 |  |                          |  |  |                 | 
|Residence                       |  | Office or Position       |  |  | Director Since  |  |  | Principal Occupation During Past 5 Years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                |  |                          |  |  |                 |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Li, Victor T.K.
    Hong Kong   |  | Co-Chairman and Director |  |  | August 25, 2000 |  |  | Managing Director of Cheung Kong (Holdings) Limited (an
    investment holding and project management company) since 1999
    and Deputy Chairman since 1994. Mr. Li has also been Deputy
    Chairman of Hutchison Whampoa Limited (an investment holding
    company) since 1999 and Executive Director since 1995.
    Mr. Li has been a Director and Chairman of CK Life
    Sciences Intl., (Holdings) Inc. (a biotechnology company)
    since 2002 and has held the following positions for more than
    five years: a Director and Chairman of Cheung Kong
    Infrastructure Holdings Limited (an infrastructure development
    company), an Executive Director of Hongkong Electric Holdings
    Limited (a holding company). Mr. Li is also a Director of
    The Hongkong and Shanghai Banking Corporation Limited.
    Mr. Li is a member of the Standing Committee of the
    10thNational Committee of the Chinese Peoples Political
    Consultative Conference of the Peoples Republic of China
    and he is also a member of the Executive Committee of the
    Commission on Strategic Development and the Economic and
    Employment Council of the Hong Kong Special Administrative
    Region. Mr. Li holds a Bachelor of Science degree in Civil
    Engineering and a Master of Science degree in Structural
    Engineering.
|Fok, Canning K.N.
    Hong Kong |  | Co-Chairman and Director |  |  | August 25, 2000 |  |  | Group Managing Director of Hutchison Whampoa Limited since 1993
    and Executive Director since 1984. Mr. Fok has been a
    Director and Chairman of Hutchison Telecommunications
    International Limited (an investment holding company) since
    2004. Mr. Fok has held the following positions for more
    than five years: a Director and since 2002, Chairman of
    Hutchison Harbour Ring Limited (an investment holding company),
    a Director and Chairman of Hutchison Telecommunications
    (Australia) Limited (a telecommunications company), and Partner
    Communications Company Ltd. (a telecommunications company),
    Deputy Chairman and a Director of Cheung Kong Infrastructure
    Holdings Limited and a Director, and since November 2005 Chairman                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|                                                         |  |                    |          |  |                |  |                 |                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------- |  | ------------------ | -------- |  | -------------- |  | --------------- | ---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name and                                                 |  |                    |          |  |                | 
|Municipality of                                          |  |                    |          |  |                | 
|Residence                                                |  | Office or Position |          |  | Director Since |  |                 | Principal Occupation During Past 5 Years
|                                                         |  |                    |          |  |                |  |                 |                                         
|                                                         |  |                    |          |  |                |  |                 |                                          |  | of Hongkong Electric Holdings Limited. Mr. Fok is also a
    director of Cheung Kong (Holdings) Limited and Hutchison Whampoa
    Finance (CI) Limited (a finance company). Mr. Fok is also a
    Non Executive Director of Panvas Gas Holdings Limited.
    Mr. Fok was a director of Voice Stream Wireless Corporation
    from 1998 - 2001 and Hanny Holdings Limited from 1992 - 2005.
    Mr. Fok holds a Bachelor of Arts degree and is a member of
    the Australian Institute of Chartered Accountants.                                                                                                                                                                                                  
|Fullerton, R. Donald
    Toronto, Ontario Canada         |  |                    | Director |  |                |  | May 1, 2003     |                                          |  | Corporate Director. Mr. Fullerton has been a Director of
    Asia Satellite Telecommunications Holdings Limited since 1996.
    Mr. Fullerton was a director of George Weston Limited (a
    holding company) from 1991 to 2005, of Partner Communications
    Ltd. from 2003 to 2005, of CIBC from 1974 to 2004, of Hollinger
    Inc. from 1992 to 2003, of Westcoast Energy Inc. from 1993 to
    2003 and of IBM Canada Ltd. from 1982 to 2001.                                                                                                                                                                                                                                                               
|Glynn, Martin J.G.
    New York, New York
    U.S.A.     |  |                    | Director |  |                |  | August 25, 2000 |                                          |  | President and Chief Executive Officer of HSBC Bank USA N.A.
    since 2003 and a director since 2000. Mr. Glynn has been a
    director of HSBC Bank Canada since 1999 and was President and
    Chief Executive Officer from 1999 to 2003. From 1982
    Mr. Glynn held various senior executive positions with HSBC
    Bank Canada (formerly Hongkong Bank of Canada). Mr. Glynn
    is also a director of Wells Fargo HSBC Trade Bank N.A. and Group
    General Manager of HSBC Holdings plc.                                                                                                                                                                                                                
|Hui, Terence C.Y.
    Vancouver, British Columbia Canada |  |                    | Director |  |                |  | August 25, 2000 |                                          |  | President & Chief Executive Officer, Concord Pacific Group
    Inc. (a real estate development company) since 1997, Director
    and President of Adex Securities Inc. (a financial services
    company) since 1992 and Director and Chairman of Maximizer
    Software Inc. (formerly Multiactive Software Inc.) and
    Multiactive Technologies Inc. (computer software companies)
    since 1995 and of Coopers Park Real Estate Corporation since
    2005. Mr. Hui was President and Chief Executive Officer of
    Pacific Place Developments Corp. (a real estate development
    company) from 1992 to 2001. Mr. Hui has been a director of
    abc Multiactive Limited (a software company) since 1995.
|Kinney, Brent D.
    Dubai, United Arab Emirates         |  |                    | Director |  |                |  | August 25, 2000 |                                          |  | Mr. Kinney has been a director and Chief Executive Officer
    of Sky Petroleum Inc. since 2005. Mr. Kinney has been a
    director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|                                                           |  |                                                  |          |  |                 |  |                 |                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------- |  | ------------------------------------------------ | -------- |  | --------------- |  | --------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name and                                                   |  |                                                  |          |  |                 | 
|Municipality of                                            |  |                                                  |          |  |                 | 
|Residence                                                  |  | Office or Position                               |          |  | Director Since  |  |                 | Principal Occupation During Past 5 Years                                                                                                                                                                                
|                                                           |  |                                                  |          |  |                 |  |                 |                                                                                                                                                                                                                         
|                                                           |  |                                                  |          |  |                 |  |                 |                                                                                                                                                                                                                          |  | of Dragon Oil plc since 2001, of Western Silver Corporation (a
    mineral exploration company) since 2005 and of Benchmark Energy
    Ltd. since 2005. Mr. Kinney was also a director of Aurado
    Energy Inc. from 2003 to 2004.                                                                                                                                                                                                                                                                                                                                                                             
|Kluge, Holger
    Toronto, Ontario Canada                  |  |                                                  | Director |  |                 |  | August 25, 2000 |                                                                                                                                                                                                                          |  | Corporate Director. Mr. Kluge has been a director of
    Hongkong Electric Holdings Limited since 1999, of Hutchison
    Whampoa Limited since 2004 and of Shoppers Drug Mart since 2006.
    Mr. Kluge was a director of Hutchison Telecommunications
    (Australia) Limited from 1999 to 2005, of TOM Group Limited
    (formerly TOM.COM LIMITED) from 2000 to 2005, and of Loring Ward
    International Limited (a financial planning company) from 2004
    to 2005. Mr. Kluge holds a Bachelor of Commerce degree and
    a Masters degree in Business Administration.                                 
|Koh, Poh Chan
    Hong Kong                                |  |                                                  | Director |  |                 |  | August 25, 2000 |                                                                                                                                                                                                                          |  | Finance Director, Harbour Plaza Hotel Management (International)
    Ltd. since 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Kwok, Eva L.
    Vancouver, British Columbia Canada        |  |                                                  | Director |  |                 |  | August 25, 2000 |                                                                                                                                                                                                                          |  | Chairman, a director and Chief Executive Officer of Amara
    International Investment Corp. (an investment holding company)
    since 1992 and President from 1992 to 1996. Mrs. Kwok has been a
    director of Bank of Montreal Group of Companies since 1999, of
    CK Life Sciences Intl., (Holdings) Inc. since 2002,
    Cheung Kong Infrastructure Holdings Limited and Shoppers Drug
    Mart since 2004 and of the Li Ka Shing (Canada) Foundation since
    2005. Mrs. Kwok was a director of Air Canada from 1998 to
    2003 and of Telesystem International Wireless Inc. from 2002 to
    2003.
|Kwok, Stanley T.L. 
    Vancouver, British Columbia Canada |  |                                                  | Director |  |                 |  | August 25, 2000 |                                                                                                                                                                                                                          |  | President, Stanley Kwok Consultants (an architecture, planning
    and development company) since 1993. Mr. Kwok has been a
    director since 1997 and President since 1999 of Amara
    International Investment Corp. Mr. Kwok is a director of
    Cheung Kong (Holdings) Limited and CTC Bank of Canada.                                                                                                                                                                                                                                                                                                   
|Lau, John C.S.
    Calgary, Alberta
    Canada             |  | President & Chief Executive Officer and Director |          |  | August 25, 2000 |  |                 | President & Chief Executive Officer of Husky Energy Inc.
    since August 2000.                                                                                                                                         
|Shaw, Wayne E.
    Toronto, Ontario
    Canada             |  |                                                  | Director |  |                 |  | August 25, 2000 |                                                                                                                                                                                                                          |  | Senior Partner, Stikeman Elliott LLP, Barristers and Solicitors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Shurniak, William
    Limerick, Saskatchewan
    Canada    |  | Deputy Chairman and Director                     |          |  | August 25, 2000 |  |                 | Director and chairman of Northern Gas Networks Limited (a
    distributor of natural gas in Northern England) since 2005 and a
    director of Hutchison Whampoa Limited since 1984.
    Mr. Shurniak held the following

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|                             |  |                    |          |  |                |  |                 |                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---------------------------- |  | ------------------ | -------- |  | -------------- |  | --------------- | ---------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name and                     |  |                    |          |  |                | 
|Municipality of              |  |                    |          |  |                | 
|Residence                    |  | Office or Position |          |  | Director Since |  |                 | Principal Occupation During Past 5 Years
|                             |  |                    |          |  |                |  |                 |                                         
|                             |  |                    |          |  |                |  |                 |                                          |  | positions until his return to Canada in 2005: Director and
    Chairman of ETSA Utilities (a utility company) since 2000,
    Powercor Australia Limited (a utility company) since 2000 and
    CitiPower Pty Ltd. (a utility company) since 2002, a director of
    Envestra Limited (a natural gas distributor) since 2000,
    CrossCity Motorways Pty Ltd. (an infrastructure and
    transportation company) since 2002, and of Lane Cove Tunnel
    Company Pty Ltd. (an infrastructure and transportation company)
    since 2004. Mr. Shurniak holds an Honorary Doctor of Laws
    degree from the University of Saskatchewan and from The
    University of Western Ontario.                                                                                                                                                                                                                                                                                                   
|Sixt, Frank J.
    Hong Kong |  |                    | Director |  |                |  | August 25, 2000 |                                          |  | Group Finance Director of Hutchison Whampoa Limited since 1998
    and Executive Director since 1991. Mr. Sixt has been the
    Chairman and Director of TOM Online Inc., and a Director of
    Hutchison Telecommunications International Limited since 2004.
    Mr. Sixt has held the following positions for more than
    five years: Chairman and Director of TOM Group Limited,
    Executive Director of Cheung Kong Infrastructure Holdings
    Limited and Hongkong Electric Holdings Limited and a Director of
    Cheung Kong (Holdings) Limited, Hutchison Whampoa Finance (CI)
    Limited, Hutchison Telecommunications (Australia) Limited, and
    Partner Communications Company Ltd. Mr. Sixt was also a
    director of VoiceStream Wireless Corp. from 2000 to 2001.
    Mr. Sixt holds a Masters degree in Arts and a
    Bachelors degree in Civil Law and is a member of the Bar
    and of the Law Society of the Provinces of Quebec and Ontario,
    Canada.

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|                                        |  |                                                     |  |                                                                                      
|--------------------------------------- |  | --------------------------------------------------- |  | -------------------------------------------------------------------------------------
|Name and Municipality of                |  |                                                     |  |                                                                                      
|Residence                               |  | Office or Position                                  |  | Principal Occupation During Past 5 Years                                             
|                                        |  |                                                     |  |                                                                                      
|Ingram, Donald R.
    Calgary, Alberta  |  | Senior Vice President, Midstream & Refined Products |  | Senior Vice President, Midstream and Refined Products of Husky
    since August 2000.
|                                       
|Girgulis, James D.
    Calgary, Alberta |  | Vice President, Legal & Corporate Secretary         |  | Vice President, Legal & Corporate Secretary of Husky since
    August 2000.          

Business Corporations Act




Conflicts of Interest


Business Corporations Act


Corporate Cease Trade Orders or Bankruptcies


Companies Creditors Arrangement Act


Individual Penalties, Sanctions or Bankruptcies






65



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##### Table of Contents






AUDIT COMMITTEE


52-110
















External Auditor Service Fees




|                   |  |                  |       |  |      |  |       | 
|------------------ |  | ---------------- | ----- |  | ---- |  | ----- | 
|                   |  | Aggregate Fees   |      
|                   |  | Billed by the    |      
|                   |  | External Auditor |      
|                   |  |                  |      
|                   |  | 2005             |       |  | 2004 | 
|                   |  |                  |       |  |      | 
|                   |  | ($ thousands)    |      
|Audit fees         |  |                  | 447   |  |      |  | 805   | 
|Audit-related fees |  |                  | 27    |  |      |  | 207   | 
|Tax fees           |  |                  | 160   |  |      |  | 144   | 
|All other fees     |  |                  | 476   |  |      |  | 45    | 
|                   |  |                  |       |  |      | 
|                   |  |                  | 1,110 |  |      |  | 1,201 | 
|                   |  |                  |       |  |      | 

Audit Fees.


Audit-Related Fees.


Tax Fees.


All Other Fees.




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LEGAL PROCEEDINGS







INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS






th





TRANSFER AGENTS AND REGISTRARS







INTERESTS OF EXPERTS







ADDITIONAL INFORMATION






Additional information relating to Husky Energy Inc. is
available on SEDAR at


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ABBREVIATIONS AND GLOSSARY OF TERMS




|                 |  |                                             
|---------------- |  | --------------------------------------------
|Units of Measure |  |                                             
|                 |  |                                             
|bbl              |  |  barrel                                    
|bbls             |  |  barrels                                   
|mbbls            |  |  thousand barrels                          
|mmbbls           |  |  million barrels                           
|bbls/day         |  |  barrels per calendar day                  
|mbbls/day        |  |  thousand barrels per calendar day         
|boe              |  |  barrels of oil equivalent                 
|boe/day          |  |  barrels of oil equivalent per calendar day
|mcf              |  |  thousand cubic feet                       
|mmcf             |  |  million cubic feet                        
|bcf              |  |  billion cubic feet                        
|mmcf/day         |  |  million cubic feet per calendar day       
|mcfge            |  |  thousand cubic feet of gas equivalent     
|lt               |  |  long ton                                  
|mlt              |  |  thousand long tons                        
|lt/day           |  |  long tons per calendar day                
|mlt/day          |  |  thousand long tons per calendar day       
|mmbtu            |  |  million British thermal units             
|MW               |  |  megawatts                                 

|         |  |                                                              
|-------- |  | -------------------------------------------------------------
|Acronyms |  |                                                              
|         |  |                                                              
|API      |  |  American Petroleum Institute                               
|COGEH    |  |  Canadian Oil and Gas Evaluation Handbook                   
|FASB     |  |  Financial Accounting Standards Board                       
|FPSO     |  |  floating production, storage and offloading vessel         
|LLB      |  |  Lloydminster Blend                                         
|NGL      |  |  natural gas liquids                                        
|NYMEX    |  |  New York Mercantile Exchange                               
|OPEC     |  |  Organization of Petroleum Exporting Countries              
|PSC      |  |  production sharing contract                                
|SAGD     |  |  steam assisted gravity drainage                            
|SEC      |  |  Securities and Exchange Commission of the United
    States
|SEDAR    |  |  System for Electronic Document Analysis and Retrieval      
|WTI      |  |  West Texas Intermediate crude oil                          

Barrel




Bitumen




Bulk Terminal




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##### Table of Contents



Coal Bed Methane




Cold Production




Debottlenecking




Degrees API Gravity




Delineation Well




Developed Area




Development Well




Diluent




Dry and Abandoned Well




Enhanced Recovery




Exploration Licence




Exploratory Well




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Field




Gathering System




Horizontal Drilling




Hydrogen Sulphide




Infill Well




Liquefied Petroleum Gas




Miscible Flood




Multiple Completion Well




Natural Gas Liquids (NGL)




Oil Battery




Oil Sands




Overriding Royalty Interests




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Primary Recovery




Production Sharing Contract




Raw Gas




Recoverable Oil-in-place




Secondary Recovery




Seismic (Survey)




Service Well




Significant Discovery Licence




Sour Gas




Specific Gravity




| |  |               |  |                                     |  |  |         |  |  | 
| |  | ------------- |  | ----------------------------------- |  |  | ------- |  |  | 
| |  | Degrees API = |  | 141.5Specific gravity @ F60 degrees |  |  | -  13.5 |  |  | 

Spot Price




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Steam Assisted Gravity Drainage




Step-out Well




Straight Run




Stratigraphic Test Well




Synthetic Oil




Tertiary Recovery




Three-D Seismic (Survey)




Turnaround




Undeveloped Area




Waterflood




Well Abandonment Costs




Wellhead




Working Interest




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS








| |   |                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in commodity prices                                                                                                                                                                                                        
|
| |  | the accuracy of our oil and gas reserve estimates and estimated
    production levels as they are affected by our success at
    exploration and development drilling and related activities and
    estimated decline rates            
|
| |  | the uncertainties resulting from potential delays or changes in
    plans with respect to exploration or development projects or
    capital expenditures                                                                               
|
| |  | changes in general economic, market and business conditions                                                                                                                                                                             
|
| |  | fluctuations in supply and demand for our products                                                                                                                                                                                      
|
| |  | fluctuations in the cost of borrowing                                                                                                                                                                                                   
|
| |  | our use of derivative financial instruments to hedge exposure to
    changes in commodity prices and fluctuations in interest rates
    and foreign currency exchange rates                                                             
|
| |  | political and economic developments, expropriations, royalty and
    tax increases, retroactive tax claims and changes to import and
    export regulations and other foreign laws and policies in the
    countries in which we operate
|
| |  | our ability to receive timely regulatory approvals                                                                                                                                                                                      
|
| |  | the integrity and reliability of our capital assets                                                                                                                                                                                     
|
| |  | the cumulative impact of other resource development projects                                                                                                                                                                            
|
| |  | the maintenance of satisfactory relationships with unions,
    employee associations and joint venturers                                                                                                                                
|
| |  | competitive actions of other companies, including increased
    competition from other oil and gas companies or from companies
    that provide alternate sources of energy                                                             
|
| |  | actions by governmental authorities, including changes in
    environmental and other regulations that may impose restriction
    in areas where we operate                                                                             
|
| |  | the ability and willingness of parties with whom we have
    material relationships to fulfill their obligations                                                                                                                        

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| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the occurrence of unexpected events such as fires, blowouts,
    freeze-ups, equipment failures and other similar events
    affecting us or other parties whose operations or assets
    directly or indirectly affect us and that may or may not be
    financially recoverable
|
| |  | such other risks, uncertainties and other factors described from
    time to time in Huskys reports and filings with Canadian
    securities authorities and with the SEC.                                                                                                      



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Schedule A


AIF


HUSKY ENERGY INC.


Audit Committee Charter




Composition




Responsibility






| |       |                                                                                                                                                         
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the quarterly and annual financial statements and quarterly and
    annual MD&A be provided to shareholders and the appropriate
    regulatory agencies;
|
| | (ii)  | earnings press releases before the Company publicly discloses
    this information;                                                                     
|
| | (iii) | the system of internal controls that management has established;                                                                                        
|
| | (iv)  | the internal and external audit process;                                                                                                                
|
| | (v)   | the appointment of qualified reserves evaluators or auditors; and                                                                                       
|
| | (vi)  | the filing of statements and reports with respect to the
    Companys oil and gas reserves.                                                            







Authority






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Meetings




Specific Duties






| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Review and reassess the adequacy of this Charter annually and
    recommend any proposed changes to the Board for approval.                                                                                                                                                                                                                                                                                                                 
|
| | 2. | (a)           Review
    with the Companys management, internal audit and external
    auditors and recommend to the Board for approval the
    Companys annual financial statements and annual MD&A
    which is to be provided to shareholders and the appropriate
    regulatory agencies, including any financial statement contained
    in a prospectus, information circular, registration statement or
    other similar document.



| |     |                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Review with the Companys management, internal audit and
    external auditors and approve the Companys quarterly
    financial statements and quarterly MD&A which is to be
    provided to shareholders and the appropriate regulatory agencies.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.  | Review with the Companys management and approve earnings
    press releases before the Company publicly discloses this
    information.                                                                                                                                                                                                                                                                                               
|
| | 4.  | Recommend to the Board the external auditors to be nominated for
    the purpose of preparing or issuing an audit report or
    performing other audit, review or attest services and the
    compensation to be paid to the external auditors. The external
    auditors shall report directly to the Committee.                                                                                                                      
|
| | 5.  | Be directly responsible for the oversight of the work of the
    external auditors, including the resolution of disagreements
    between management of the Company and the external auditors
    regarding financial reporting.                                                                                                                                                                                                       
|
| | 6.  | Review with the Companys management, internal audit and
    external auditors the Companys accounting and financial
    reporting controls. Obtain annually in writing from the external
    auditors their observations, if any, on significant weaknesses
    in internal controls as noted during the course of their work.                                                                                                       
|
| | 7.  | Review with the Companys management, internal audit and
    external auditors significant accounting and reporting
    principles, practices and procedures applied by the Company in
    preparing its financial statements. Discuss with the external
    auditors their judgements about the quality, not just the
    acceptability, of the Companys accounting principles used
    in financial reporting.                     
|
| | 8.  | Review the scope of internal audits work plan for the year
    and receive a summary report of major findings by internal
    auditors and how management is addressing the conditions
    reported.                                                                                                                                                                                                                                  
|
| | 9.  | Review the scope and general extent of the external
    auditors annual audit. The Committees review should
    include an explanation from the external auditors of the factors
    considered in determining the audit scope, including the major
    risk factors. The external auditors should confirm to the
    Committee whether or not any limitations have been placed on the
    scope or nature of their audit procedures.
|
| | 10. | Inquire as to the independence of the external auditors and
    obtain from the external auditors, at least annually, a formal
    written statement delineating all relationships between the
    external auditors and the                                                                                                                                                                                                           

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | Company as contemplated by Independence Standards Board Standard
    No. 1, Independence Discussions with Audit Committees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | 11. | Have a predetermined arrangement with the external auditors that
    they will advise the Committee, through its Chair and management
    of the Company, of any matters identified through procedures
    followed for the review of interim quarterly financial
    statements of the Company, and that such notification is to be
    made prior to the related press release. Also receive a written
    confirmation provided by the external auditors at the end of
    each of the first three quarters of the year that they have
    nothing to report to the Committee, if that is the case, or the
    written enumeration of required reporting issues.
|
| | 12. | At the completion of the annual audit, review with management,
    internal audit and the external auditors the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The annual financial statements and related footnotes and
    financial information to be included in the Companys
    annual report to shareholders.                                                                                                                                                    
|
| |  | Results of the audit of the financial statements and the related
    report thereon and, if applicable, a report on changes during
    the year in accounting principles and their application.                                                                                                           
|
| |  | Significant changes to the audit plan, if any, and any serious
    disputes or difficulties with management encountered during the
    audit. Inquire about the cooperation received by the external
    auditors during their audit, including access to all requested
    records, data and information.
|
| |  | Inquire of the external auditors whether there have been any
    material disagreements with management, which, if not
    satisfactorily resolved, would have caused them to issue a
    non-standard report on the Companys financial statements.                                                      



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 13. | Discuss with the external auditors, without management being
    present, (a) the quality of the Companys financial
    and accounting personnel, and (b) the completeness and
    accuracy of the Companys financial statements. Also,
    elicit the comments of management regarding the responsiveness
    of the external auditors to the Companys needs.                                                                                                                                                                                                                             
|
| | 14. | Meet with management, to discuss any relevant significant
    recommendations that the external auditors may have,
    particularly those characterized as material or
    serious. Typically, such recommendations will be
    presented by the external auditors in the form of a Letter of
    Comments and Recommendations to the Committee. The Committee
    should review responses of management to the Letter of Comments
    and Recommendations from the external auditors and receive
    follow-up reports on action taken concerning the aforementioned
    recommendations.
|
| | 15. | Have the sole authority to review in advance, and grant any
    appropriate pre-approvals, of all non-audit services to be
    provided by the independent auditors and, in connection
    therewith, to approve all fees and other terms of engagement.
    The Committee shall also review and approve disclosures required
    to be included in periodic reports filed with Canadian
    securities regulators and the Securities and Exchange Commission
    with respect to non-audit services performed by external
    auditors.                                                      
|
| | 16. | Be satisfied that adequate procedures are in place for the
    review of the Companys disclosure of financial information
    extracted or derived from the Companys financial
    statements, and periodically assess the adequacy of those
    procedures.                                                                                                                                                                                                                                                                                                                                
|
| | 17. | Establish procedures for (a) the receipt, retention and
    treatment of complaints received by the Company regarding
    accounting, internal accounting controls or auditing matter, and
    (b) the confidential, anonymous submission by employees of
    the Company of concerns regarding questionable accounting or
    auditing matters.                                                                                                                                                                                                                                              
|
| | 18. | Review and approve the Companys hiring policies regarding
    partners, employees and former partners and employees of the
    present and former external auditors.                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 19. | Review the appointment and replacement of the senior internal
    audit executive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | 20. | Review with management, internal audit and the external auditors
    the methods used to establish and monitor the Companys
    policies with respect to unethical or illegal activities by
    Company employees that may have a material impact on the
    financial statements.                                                                                                                                                                                                                                                                                                           

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 21. | Generally as part of the review of the annual financial
    statements, receive a report(s), at least annually, from the
    Companys general counsel concerning legal, regulatory and
    compliance matters that may have a material impact on the
    financial statements.                                                                                                                                                                                                                  
|
| | 22. | Review, with reasonable frequency, the Companys procedures
    relating to the disclosure of information with respect to the
    Companys oil and gas reserves, including the
    Companys procedures for complying with the disclosure
    requirements and restrictions of applicable regulations.                                                                                                                                                                                          
|
| | 23. | Review with management the appointment of external qualified
    reserves evaluators or auditors, and in the case of any proposed
    change in such appointment, determine the reasons for the change
    and whether there have been disputes between the appointed
    external qualified reserves evaluators or auditors, and
    management.                                                                                                                                                
|
| | 24. | Review, with reasonable frequency, the Companys procedures
    for providing information to the external qualified reserves
    evaluators or auditors who report on reserves and data for the
    purposes of compliance with applicable securities laws.                                                                                                                                                                                                                                      
|
| | 25. | Before the approval and the release of the Companys
    reserves data and the report of the qualified reserve evaluators
    or auditors thereon, meet with management, the external
    qualified reserves evaluators or auditors and the internal
    qualified reserves evaluators to determine whether any
    restrictions affect their ability to report on reserves data
    without reservation and to review the reserves data and the
    report of the qualified reserves evaluators.
|
| | 26. | Recommend to the Board for approval the content and filing of
    required statements and reports relating to the Companys
    disclosure of reserve data as prescribed by applicable
    regulations.                                                                                                                                                                                                                                                                                          
|
| | 27. | Review and approve (a) any change or waiver in the
    Companys Code of Business Conduct for the chief executive
    officer and senior financial officers and (b) any public
    disclosure made regarding such change or waiver.                                                                                                                                                                                                                                                              





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Document B


Form 40-F




CONSOLIDATED FINANCIAL STATEMENTS AND


AUDITORS REPORT TO SHAREHOLDERS


For the Year Ended December 31, 2005






---



##### Table of Contents



MANAGEMENTS REPORT












|                                                                         |  | 
|------------------------------------------------------------------------ |  | 
|/s/ John C. S. LauJohn C. S. Lau
    President & Chief Executive Officer |  | 





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##### Table of Contents



AUDITORS REPORT TO THE SHAREHOLDERS








llp





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COMMENTS BY AUDITOR FOR US READERS ON CANADA/ US REPORTING
DIFFERENCES




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS


|                                                |                                                    |                       |        |       |      |   |        |       |  |   |        |       | 
|----------------------------------------------- | -------------------------------------------------- | --------------------- | ------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                                                |                                                    | As at December 31     |       
|                                                |                                                    |                       |       
|                                                |                                                    | 2005                  |        |       | 2004 |   |        | 2003  | 
|                                                |                                                    |                       |        |       |      |   |        |       | 
|                                                |                                                    | (millions of dollars) |       
|ASSETS                                         
|Current assets                                  |                                                    |                       |        |       |      |   |        |       |  |   |        |      
|                                                | Cash and cash equivalents                          |                       | $      | 249   |      |   | $      | 7     |  |   | $      | 3     | 
|                                                | Accounts receivable (note 4)                       |                       |        | 856   |      |   |        | 446   |  |   |        | 618   | 
|                                                | Inventories (note 5)                               |                       |        | 471   |      |   |        | 274   |  |   |        | 198   | 
|                                                | Prepaid expenses                                   |                       |        | 40    |      |   |        | 52    |  |   |        | 33    | 
|                                                |                                                    |                       |        |       |      |   |        |       | 
|                                                |                                                    |                       | 1,616  |       |      |   | 779    |       |  |   | 852    |      
|Property, plant and equipment, net (notes 1, 6) |                                                    |                       | 13,959 |       |      |   | 12,193 |       |  |   | 10,862 |      
|Goodwill (note 7)                               |                                                    |                       | 160    |       |      |   | 160    |       |  |   | 120    |      
|Other assets (note 11)                          |                                                    |                       | 62     |       |      |   | 108    |       |  |   | 115    |      
|                                                |                                                    |                       |        |       |      |   |        |       | 
|                                                |                                                    | $                     | 15,797 |       |      | $ | 13,240 |       |  | $ | 11,949 |      
|                                                |                                                    |                       |        |       |      |   |        |       | 
|                                               
|LIABILITIES AND SHAREHOLDERS EQUITY           
|Current liabilities                             |                                                    |                       |        |       |      |   |        |       |  |   |        |      
|                                                | Bank operating loans (note 9)                      |                       | $      |      |      |   | $      | 49    |  |   | $      | 71    | 
|                                                | Accounts payable and accrued liabilities (note 10) |                       |        | 2,391 |      |   |        | 1,498 |  |   |        | 1,136 | 
|                                                | Long-term debt due within one year (note 11)       |                       |        | 274   |      |   |        | 56    |  |   |        | 259   | 
|                                                |                                                    |                       |        |       |      |   |        |       | 
|                                                |                                                    |                       | 2,665  |       |      |   | 1,603  |       |  |   | 1,466  |      
|Long-term debt (note 11)                        |                                                    |                       | 1,612  |       |      |   | 2,047  |       |  |   | 1,730  |      
|Other long-term liabilities (note 12)           |                                                    |                       | 730    |       |      |   | 632    |       |  |   | 519    |      
|Future income taxes (note 13)                   |                                                    |                       | 3,270  |       |      |   | 2,758  |       |  |   | 2,621  |      
|Commitments and contingencies (note 14)         |                                                    |                       |        |       |      |   |        |       |  |   |        |      
|Shareholders equity                            |                                                    |                       |        |       |      |   |        |       |  |   |        |      
|                                                | Common shares (note 15)                            |                       |        | 3,523 |      |   |        | 3,506 |  |   |        | 3,457 | 
|                                                | Retained earnings                                  |                       |        | 3,997 |      |   |        | 2,694 |  |   |        | 2,156 | 
|                                                |                                                    |                       |        |       |      |   |        |       | 
|                                                |                                                    |                       | 7,520  |       |      |   | 6,200  |       |  |   | 5,613  |      
|                                                |                                                    |                       |        |       |      |   |        |       | 
|                                                |                                                    | $                     | 15,797 |       |      | $ | 13,240 |       |  | $ | 11,949 |      
|                                                |                                                    |                       |        |       |      |   |        |       | 



|                                              |  |                                              
|--------------------------------------------- |  | ---------------------------------------------
|/s/ John C. S. LauJohn C. S. Lau
    Director |  | /s/ R.D. FullertonR.D. Fullerton
    Director

The accompanying notes to the consolidated financial
statements are an integral part of these statements.


2004 and 2003 amounts as restated (notes 3
and 11).


3



---



##### Table of Contents



CONSOLIDATED STATEMENTS OF EARNINGS


|                                               |                                                       |                                  |        |       |      |   |       |       |   |   |       |       |  
|---------------------------------------------- | ----------------------------------------------------- | -------------------------------- | ------ | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|                                               |                                                       | Year ended December 31           |       
|                                               |                                                       |                                  |       
|                                               |                                                       | 2005                             |        |       | 2004 |   |       | 2003  |  
|                                               |                                                       |                                  |        |       |      |   |       |       |  
|                                               |                                                       | (millions of dollars, except per |       
|                                               |                                                       | share amounts)                   |       
|Sales and operating revenues, net of royalties |                                                       | $                                | 10,245 |       |      | $ | 8,440 |       |   | $ | 7,658 |      
|Costs and expenses                             |                                                       |                                  |        |       |      |   |       |       |   |   |       |      
|                                               | Cost of sales and operating expenses (note 12)        |                                  |        | 5,917 |      |   |       | 5,706 |   |   |       | 4,847 |  
|                                               | Selling and administration expenses                   |                                  |        | 138   |      |   |       | 135   |   |   |       | 119   |  
|                                               | Stock-based compensation (note 15)                    |                                  |        | 171   |      |   |       | 67    |   |   |       |      |  
|                                               | Depletion, depreciation and amortization (notes 1, 6) |                                  |        | 1,256 |      |   |       | 1,179 |   |   |       | 1,021 |  
|                                               | Interest  net (note 11)                              |                                  |        | 32    |      |   |       | 60    |   |   |       | 102   |  
|                                               | Foreign exchange (note 11)                            |                                  |        | (31   | )    |   |       | (120  | ) |   |       | (282  | )
|                                               | Other  net                                           |                                  |        | (50   | )    |   |       | 8     |   |   |       | 3     |  
|                                               |                                                       |                                  |        |       |      |   |       |       |  
|                                               |                                                       |                                  | 7,433  |       |      |   | 7,035 |       |   |   | 5,810 |      
|                                               |                                                       |                                  |        |       |      |   |       |       |  
|Earnings before income taxes                   |                                                       |                                  | 2,812  |       |      |   | 1,405 |       |   |   | 1,848 |      
|                                               |                                                       |                                  |        |       |      |   |       |       |  
|Income taxes (note 13)                         |                                                       |                                  |        |       |      |   |       |       |   |   |       |      
|                                               | Current                                               |                                  |        | 297   |      |   |       | 302   |   |   |       | 147   |  
|                                               | Future                                                |                                  |        | 512   |      |   |       | 97    |   |   |       | 331   |  
|                                               |                                                       |                                  |        |       |      |   |       |       |  
|                                               |                                                       |                                  | 809    |       |      |   | 399   |       |   |   | 478   |      
|                                               |                                                       |                                  |        |       |      |   |       |       |  
|Net earnings                                   |                                                       | $                                | 2,003  |       |      | $ | 1,006 |       |   | $ | 1,370 |      
|                                               |                                                       |                                  |        |       |      |   |       |       |  
|Earnings per share (note 15)                   |                                                       |                                  |        |       |      |   |       |       |   |   |       |      
|                                               | Basic                                                 |                                  | $      | 4.72  |      |   | $     | 2.37  |   |   | $     | 3.26  |  
|                                               | Diluted                                               |                                  | $      | 4.72  |      |   | $     | 2.37  |   |   | $     | 3.25  |  

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS


|                                                              |          |                        |       |      |      |   |       |      |   |   |       |      |  
|------------------------------------------------------------- | -------- | ---------------------- | ----- | ---- | ---- | - | ----- | ---- | - | - | ----- | ---- | -
|                                                              |          | Year ended December 31 |      
|                                                              |          |                        |      
|                                                              |          | 2005                   |       |      | 2004 |   |       | 2003 |  
|                                                              |          |                        |       |      |      |   |       |      |  
|                                                              |          | (millions of dollars)  |      
|Beginning of year                                             |          | $                      | 2,694 |      |      | $ | 2,156 |      |   | $ | 1,366 |     
|Net earnings                                                  |          |                        | 2,003 |      |      |   | 1,006 |      |   |   | 1,370 |     
|Dividends on common shares (note 15)                          |          |                        |       |      |      |   |       |      |   |   |       |     
|                                                              | Ordinary |                        |       | (276 | )    |   |       | (195 | ) |   |       | (160 | )
|                                                              | Special  |                        |       | (424 | )    |   |       | (229 | ) |   |       | (420 | )
|Stock-based compensation  retroactive adoption
    (note 15) |          |                        |      |      |      |   | (44   | )    |   |   |      |     
|                                                              |          |                        |       |      |      |   |       |      |  
|End of year                                                   |          | $                      | 3,997 |      |      | $ | 2,694 |      |   | $ | 2,156 |     
|                                                              |          |                        |       |      |      |   |       |      |  

The accompanying notes to the consolidated financial
statements are an integral part of these statements.


2004 and 2003 amounts as restated (notes 3
and 11).


4



---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                     |                                          |       |        |       |   |       |        |       |   |       |        |       |  
|------------------------------------------------ | --------------------------------------------------- | ---------------------------------------- | ----- | ------ | ----- | - | ----- | ------ | ----- | - | ----- | ------ | ----- | -
|                                                 |                                                     | Year ended December 31                   |      
|                                                 |                                                     |                                          |      
|                                                 |                                                     | 2005                                     |       |        | 2004  |   |       | 2003   |      
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|                                                 |                                                     | (millions of dollars)                    |      
|Operating activities                             |                                                     |                                          |       |        |       |   |       |        |       |   |       |       
|                                                 | Net earnings                                        |                                          | $     | 2,003  |       |   | $     | 1,006  |       |   | $     | 1,370  |      
|                                                 | Items not affecting cash                            |                                          |       |        |       |   |       |        |       |   |       |        |      
|                                                 |                                                     | Accretion (note 12)                      |       |        | 33    |   |       |        | 27    |   |       |        | 22    |  
|                                                 |                                                     | Depletion, depreciation and amortization |       |        | 1,256 |   |       |        | 1,179 |   |       |        | 1,021 |  
|                                                 |                                                     | Future income taxes                      |       |        | 512   |   |       |        | 97    |   |       |        | 331   |  
|                                                 |                                                     | Foreign exchange                         |       |        | (37   | ) |       |        | (124  | ) |       |        | (309  | )
|                                                 |                                                     | Other                                    |       |        | 18    |   |       |        | 12    |   |       |        | (5    | )
|                                                 | Settlement of asset retirement obligations          |                                          |       | (41    | )     |   |       | (40    | )     |   |       | (34    | )    
|                                                 | Change in non-cash working capital (note 8)         |                                          |       | (72    | )     |   |       | 169    |       |   |       | 113    |      
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|                                                 | Cash flow  operating activities                    |                                          |       | 3,672  |       |   |       | 2,326  |       |   |       | 2,509  |      
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|Financing activities                             |                                                     |                                          |       |        |       |   |       |        |       |   |       |       
|                                                 | Bank operating loans financing  net                |                                          |       | (49    | )     |   |       | (22    | )     |   |       | 71     |      
|                                                 | Long-term debt issue                                |                                          |       | 3,235  |       |   |       | 2,200  |       |   |       | 598    |      
|                                                 | Long-term debt repayment                            |                                          |       | (3,401 | )     |   |       | (1,937 | )     |   |       | (971   | )    
|                                                 | Settlement of cross currency swap                   |                                          |       |       |       |   |       |       |       |   |       | (32    | )    
|                                                 | Debt issue costs                                    |                                          |       |       |       |   |       | (5     | )     |   |       |       |      
|                                                 | Proceeds from exercise of stock options             |                                          |       | 6      |       |   |       | 18     |       |   |       | 51     |      
|                                                 | Proceeds from monetization of financial instruments |                                          |       | 39     |       |   |       | 8      |       |   |       | 44     |      
|                                                 | Dividends on common shares                          |                                          |       | (700   | )     |   |       | (424   | )     |   |       | (580   | )    
|                                                 | Other                                               |                                          |       | (1     | )     |   |       |       |       |   |       |       |      
|                                                 | Change in non-cash working capital (note 8)         |                                          |       | 255    |       |   |       | 337    |       |   |       | 48     |      
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|                                                 | Cash flow  financing activities                    |                                          |       | (616   | )     |   |       | 175    |       |   |       | (771   | )    
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|Available for investing                          |                                                     |                                          | 3,056 |        |       |   | 2,501 |        |       |   | 1,738 |       
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|Investing activities                             |                                                     |                                          |       |        |       |   |       |        |       |   |       |       
|                                                 | Capital expenditures                                |                                          |       | (3,068 | )     |   |       | (2,349 | )     |   |       | (1,868 | )    
|                                                 | Corporate acquisitions                              |                                          |       |       |       |   |       | (102   | )     |   |       | (809   | )    
|                                                 | Asset sales                                         |                                          |       | 74     |       |   |       | 36     |       |   |       | 511    |      
|                                                 | Other                                               |                                          |       | (31    | )     |   |       | (19    | )     |   |       | 5      |      
|                                                 | Change in non-cash working capital (note 8)         |                                          |       | 211    |       |   |       | (63    | )     |   |       | 120    |      
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|                                                 | Cash flow  investing activities                    |                                          |       | (2,814 | )     |   |       | (2,497 | )     |   |       | (2,041 | )    
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|Increase (decrease) in cash and cash equivalents |                                                     |                                          | 242   |        |       |   | 4     |        |       |   | (303  | )     
|Cash and cash equivalents at beginning of year   |                                                     |                                          | 7     |        |       |   | 3     |        |       |   | 306   |       
|                                                 |                                                     |                                          |       |        |       |   |       |        |      
|Cash and cash equivalents at end of year         |                                                     | $                                        | 249   |        |       | $ | 7     |        |       | $ | 3     |       
|                                                 |                                                     |                                          |       |        |       |   |       |        |      

The accompanying notes to the consolidated financial
statements are an integral part of these statements.


2004 and 2003 amounts as restated (notes 3
and 11).


5



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




Note 1


Segmented Financial
Information(1)


|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |       | 
|----------------------------------------------------- | --------------------------------------------- | -------- | ------ | --------- | --------- | -------------- | ------------- | ------ |  | - | ------ | ------ |  | ---- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                                      |                                               | Upstream |        |           | Midstream |               
|                                                      |                                               |          |        |           |           |               
|                                                      |                                               |          |        |           |           | Infrastructure |              
|                                                      |                                               |          |        | Upgrading |           |                | and Marketing |       
|                                                      |                                               |          |        |           |           |                |               |       
|                                                      |                                               | 2005     |        |           | 2004      |                |               | 2003   |  |   | 2005   |        |  | 2004 |       |       | 2003 |   |       | 2005  |  |   | 2004  |       |  | 2003 |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Year ended December 31                                |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|Sales and operating revenues, net of royalties        |                                               | $        | 4,367  |           |           | $              | 3,120         |        |  | $ | 3,186  |        |  | $    | 1,488 |       |      | $ | 1,058 |       |  | $ | 1,013 |       |  | $    | 7,383 |       |  | $ | 6,126 |       |  | $ | 4,946 |      
|Costs and expenses                                    |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                                      | Operating, cost of sales, selling and general |          |        | 1,050     |           |                |               | 967    |  |   |        | 873    |  |      |       | 1,018 |      |   |       | 884   |  |   |       | 901   |  |      |       | 7,084 |  |   |       | 5,914 |  |   |       | 4,747 | 
|                                                      | Depletion, depreciation and amortization      |          |        | 1,144     |           |                |               | 1,077  |  |   |        | 918    |  |      |       | 21    |      |   |       | 19    |  |   |       | 20    |  |      |       | 21    |  |   |       | 21    |  |   |       | 21    | 
|                                                      | Interest  net                                |          |        |          |           |                |               |       |  |   |        |       |  |      |       |      |      |   |       |      |  |   |       |      |  |      |       |      |  |   |       |      |  |   |       |      | 
|                                                      | Foreign exchange                              |          |        |          |           |                |               |       |  |   |        |       |  |      |       |      |      |   |       |      |  |   |       |      |  |      |       |      |  |   |       |      |  |   |       |      | 
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|                                                      |                                               |          | 2,194  |           |           |                | 2,044         |        |  |   | 1,791  |        |  |      | 1,039 |       |      |   | 903   |       |  |   | 921   |       |  |      | 7,105 |       |  |   | 5,935 |       |  |   | 4,768 |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Earnings (loss) before income taxes                   |                                               |          | 2,173  |           |           |                | 1,076         |        |  |   | 1,395  |        |  |      | 449   |       |      |   | 155   |       |  |   | 92    |       |  |      | 278   |       |  |   | 191   |       |  |   | 178   |      
|Current income taxes                                  |                                               |          | 215    |           |           |                | 211           |        |  |   | 95     |        |  |      | 16    |       |      |   |      |       |  |   | 1     |       |  |      | (14   | )     |  |   | 31    |       |  |   | 27    |      
|Future income taxes                                   |                                               |          | 434    |           |           |                | 152           |        |  |   | 233    |        |  |      | 120   |       |      |   | 43    |       |  |   | 20    |       |  |      | 110   |       |  |   | 32    |       |  |   | 37    |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Net earnings (loss)                                   |                                               | $        | 1,524  |           |           | $              | 713           |        |  | $ | 1,067  |        |  | $    | 313   |       |      | $ | 112   |       |  | $ | 71    |       |  | $    | 182   |       |  | $ | 128   |       |  | $ | 114   |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Capital employed  As at December 31                  |                                               | $        | 8,697  |           |           | $              | 7,600         |        |  | $ | 6,607  |        |  | $    | 510   |       |      | $ | 480   |       |  | $ | 456   |       |  | $    | 359   |       |  | $ | 402   |       |  | $ | 450   |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Property, plant and equipment  As at
    December 31 |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|Cost                                                  |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                                      | Canada                                        |          | $      | 18,512    |           |                | $             | 16,023 |  |   | $      | 13,831 |  |      | $     | 1,205 |      |   | $     | 1,084 |  |   | $     | 1,023 |  |      | $     | 683   |  |   | $     | 647   |  |   | $     | 622   | 
|                                                      | International                                 |          |        | 655       |           |                |               | 587    |  |   |        | 503    |  |      |       |      |      |   |       |      |  |   |       |      |  |      |       |      |  |   |       |      |  |   |       |      | 
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|                                                      |                                               | $        | 19,167 |           |           | $              | 16,610        |        |  | $ | 14,334 |        |  | $    | 1,205 |       |      | $ | 1,084 |       |  | $ | 1,023 |       |  | $    | 683   |       |  | $ | 647   |       |  | $ | 622   |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Accumulated depletion, depreciation and amortization  |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                                      | Canada                                        |          | $      | 6,729     |           |                | $             | 5,722  |  |   | $      | 4,718  |  |      | $     | 430   |      |   | $     | 409   |  |   | $     | 391   |  |      | $     | 247   |  |   | $     | 226   |  |   | $     | 203   | 
|                                                      | International                                 |          |        | 354       |           |                |               | 311    |  |   |        | 252    |  |      |       |      |      |   |       |      |  |   |       |      |  |      |       |      |  |   |       |      |  |   |       |      | 
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|                                                      |                                               | $        | 7,083  |           |           | $              | 6,033         |        |  | $ | 4,970  |        |  | $    | 430   |       |      | $ | 409   |       |  | $ | 391   |       |  | $    | 247   |       |  | $ | 226   |       |  | $ | 203   |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Net                                                   |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                                      | Canada                                        |          | $      | 11,783    |           |                | $             | 10,301 |  |   | $      | 9,113  |  |      | $     | 775   |      |   | $     | 675   |  |   | $     | 632   |  |      | $     | 436   |  |   | $     | 421   |  |   | $     | 419   | 
|                                                      | International                                 |          |        | 301       |           |                |               | 276    |  |   |        | 251    |  |      |       |      |      |   |       |      |  |   |       |      |  |      |       |      |  |   |       |      |  |   |       |      | 
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|                                                      |                                               | $        | 12,084 |           |           | $              | 10,577        |        |  | $ | 9,364  |        |  | $    | 775   |       |      | $ | 675   |       |  | $ | 632   |       |  | $    | 436   |       |  | $ | 421   |       |  | $ | 419   |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Capital expenditures  Year ended
    December 31(3)  |                                               | $        | 2,730  |           |           | $              | 2,157         |        |  | $ | 1,778  |        |  | $    | 120   |       |      | $ | 62    |       |  | $ | 25    |       |  | $    | 37    |       |  | $ | 31    |       |  | $ | 18    |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|Total assets  As at December 31(4)                   |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |       |       |  |   |       |       |  |   |       |      
|                                                      | Canada                                        |          | $      | 12,559    |           |                | $             | 10,771 |  |   | $      | 9,583  |  |      | $     | 844   |      |   | $     | 708   |  |   | $     | 650   |  |      | $     | 866   |  |   | $     | 746   |  |   | $     | 804   | 
|                                                      | International                                 |          |        | 328       |           |                |               | 275    |  |   |        | 264    |  |      |       |      |      |   |       |      |  |   |       |      |  |      |       |      |  |   |       |      |  |   |       |      | 
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      
|                                                      |                                               | $        | 12,887 |           |           | $              | 11,046        |        |  | $ | 9,847  |        |  | $    | 844   |       |      | $ | 708   |       |  | $ | 650   |       |  | $    | 866   |       |  | $ | 746   |       |  | $ | 804   |      
|                                                      |                                               |          |        |           |           |                |               |        |  |   |        |        |  |      |       |       |      |   |       |       |  |   |       |       |  |      |      






|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2004 and 2003 amounts as restated (notes 3 and 11).                                                                                                                                                
|   
|(2) | Eliminations relate to sales and operating revenues between
    segments recorded at transfer prices based on current market
    prices, and to unrealized intersegment profits
    in inventories.
|   
|(3) | Excludes capitalized costs related to asset retirement
    obligations incurred during the period and corporate
    acquisitions.                                                                  
|   
|(4) | Includes goodwill on corporate acquisitions related
    to Upstream.                                                                                                                               

6



---



##### Table of Contents



|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |        |  
|----------------------------------------------------- | --------------------------------------------- | ---------------- | ----- | ----- | ----------------------------- | - | ----- | ----- |  | - | ----- | ----- |  | ---- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                      |                                               | Refined Products |       |       | Corporate and Eliminations(2) |   |       | Total | 
|                                                      |                                               |                  |       |       |                               |   |       |       | 
|                                                      |                                               | 2005             |       |       | 2004                          |   |       | 2003  |  |   | 2005  |       |  | 2004 |        |        | 2003 |   |        | 2005   |   |   | 2004   |        |   | 2003 |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Year ended December 31                                |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |       
|Sales and operating revenues, net of royalties        |                                               | $                | 2,345 |       |                               | $ | 1,797 |       |  | $ | 1,502 |       |  | $    | (5,338 | )      |      | $ | (3,661 | )      |   | $ | (2,989 | )      |   | $    | 10,245 |        |   | $ | 8,440  |        |   | $ | 7,658  |       
|Costs and expenses                                    |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |       
|                                                      | Operating, cost of sales, selling and general |                  |       | 2,169 |                               |   |       | 1,694 |  |   |       | 1,426 |  |      |        | (5,145 | )    |   |        | (3,543 | ) |   |        | (2,978 | ) |      |        | 6,176  |   |   |        | 5,916  |   |   |        | 4,969  |  
|                                                      | Depletion, depreciation and amortization      |                  |       | 47    |                               |   |       | 38    |  |   |       | 26    |  |      |        | 23     |      |   |        | 24     |   |   |        | 36     |   |      |        | 1,256  |   |   |        | 1,179  |   |   |        | 1,021  |  
|                                                      | Interest  net                                |                  |       |      |                               |   |       |      |  |   |       |      |  |      |        | 32     |      |   |        | 60     |   |   |        | 102    |   |      |        | 32     |   |   |        | 60     |   |   |        | 102    |  
|                                                      | Foreign exchange                              |                  |       |      |                               |   |       |      |  |   |       |      |  |      |        | (31    | )    |   |        | (120   | ) |   |        | (282   | ) |      |        | (31    | ) |   |        | (120   | ) |   |        | (282   | )
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|                                                      |                                               |                  | 2,216 |       |                               |   | 1,732 |       |  |   | 1,452 |       |  |      | (5,121 | )      |      |   | (3,579 | )      |   |   | (3,122 | )      |   |      | 7,433  |        |   |   | 7,035  |        |   |   | 5,810  |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Earnings (loss) before income taxes                   |                                               |                  | 129   |       |                               |   | 65    |       |  |   | 50    |       |  |      | (217   | )      |      |   | (82    | )      |   |   | 133    |        |   |      | 2,812  |        |   |   | 1,405  |        |   |   | 1,848  |       
|Current income taxes                                  |                                               |                  | (3    | )     |                               |   | 11    |       |  |   | 9     |       |  |      | 83     |        |      |   | 49     |        |   |   | 15     |        |   |      | 297    |        |   |   | 302    |        |   |   | 147    |       
|Future income taxes                                   |                                               |                  | 50    |       |                               |   | 13    |       |  |   | 9     |       |  |      | (202   | )      |      |   | (143   | )      |   |   | 32     |        |   |      | 512    |        |   |   | 97     |        |   |   | 331    |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Net earnings (loss)                                   |                                               | $                | 82    |       |                               | $ | 41    |       |  | $ | 32    |       |  | $    | (98    | )      |      | $ | 12     |        |   | $ | 86     |        |   | $    | 2,003  |        |   | $ | 1,006  |        |   | $ | 1,370  |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Capital employed  As at December 31                  |                                               | $                | 475   |       |                               | $ | 354   |       |  | $ | 315   |       |  | $    | (635   | )      |      | $ | (484   | )      |   | $ | (155   | )      |   | $    | 9,406  |        |   | $ | 8,352  |        |   | $ | 7,673  |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Property, plant and equipment  As at
    December 31 |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |       
|Cost                                                  |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |       
|                                                      | Canada                                        |                  | $     | 1,063 |                               |   | $     | 878   |  |   | $     | 773   |  |      | $      | 257    |      |   | $      | 232    |   |   | $      | 205    |   |      | $      | 21,720 |   |   | $      | 18,864 |   |   | $      | 16,454 |  
|                                                      | International                                 |                  |       |      |                               |   |       |      |  |   |       |      |  |      |        |       |      |   |        |       |   |   |        |       |   |      |        | 655    |   |   |        | 587    |   |   |        | 503    |  
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|                                                      |                                               | $                | 1,063 |       |                               | $ | 878   |       |  | $ | 773   |       |  | $    | 257    |        |      | $ | 232    |        |   | $ | 205    |        |   | $    | 22,375 |        |   | $ | 19,451 |        |   | $ | 16,957 |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Accumulated depletion, depreciation and amortization  |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |       
|                                                      | Canada                                        |                  | $     | 476   |                               |   | $     | 432   |  |   | $     | 392   |  |      | $      | 180    |      |   | $      | 158    |   |   | $      | 139    |   |      | $      | 8,062  |   |   | $      | 6,947  |   |   | $      | 5,843  |  
|                                                      | International                                 |                  |       |      |                               |   |       |      |  |   |       |      |  |      |        |       |      |   |        |       |   |   |        |       |   |      |        | 354    |   |   |        | 311    |   |   |        | 252    |  
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|                                                      |                                               | $                | 476   |       |                               | $ | 432   |       |  | $ | 392   |       |  | $    | 180    |        |      | $ | 158    |        |   | $ | 139    |        |   | $    | 8,416  |        |   | $ | 7,258  |        |   | $ | 6,095  |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Net                                                   |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |       
|                                                      | Canada                                        |                  | $     | 587   |                               |   | $     | 446   |  |   | $     | 381   |  |      | $      | 77     |      |   | $      | 74     |   |   | $      | 66     |   |      | $      | 13,658 |   |   | $      | 11,917 |   |   | $      | 10,611 |  
|                                                      | International                                 |                  |       |      |                               |   |       |      |  |   |       |      |  |      |        |       |      |   |        |       |   |   |        |       |   |      |        | 301    |   |   |        | 276    |   |   |        | 251    |  
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|                                                      |                                               | $                | 587   |       |                               | $ | 446   |       |  | $ | 381   |       |  | $    | 77     |        |      | $ | 74     |        |   | $ | 66     |        |   | $    | 13,959 |        |   | $ | 12,193 |        |   | $ | 10,862 |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Capital expenditures  Year ended
    December 31(3)  |                                               | $                | 191   |       |                               | $ | 106   |       |  | $ | 58    |       |  | $    | 21     |        |      | $ | 23     |        |   | $ | 23     |        |   | $    | 3,099  |        |   | $ | 2,379  |        |   | $ | 1,902  |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|Total assets  As at December 31(4)                   |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |        |        |   |   |        |        |   |   |        |       
|                                                      | Canada                                        |                  | $     | 834   |                               |   | $     | 625   |  |   | $     | 540   |  |      | $      | 366    |      |   | $      | 115    |   |   | $      | 108    |   |      | $      | 15,469 |   |   | $      | 12,965 |   |   | $      | 11,685 |  
|                                                      | International                                 |                  |       |      |                               |   |       |      |  |   |       |      |  |      |        |       |      |   |        |       |   |   |        |       |   |      |        | 328    |   |   |        | 275    |   |   |        | 264    |  
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       
|                                                      |                                               | $                | 834   |       |                               | $ | 625   |       |  | $ | 540   |       |  | $    | 366    |        |      | $ | 115    |        |   | $ | 108    |        |   | $    | 15,797 |        |   | $ | 13,240 |        |   | $ | 11,949 |       
|                                                      |                                               |                  |       |       |                               |   |       |       |  |   |       |       |  |      |        |        |      |   |        |        |   |   |        |        |   |      |       

Note 2


Nature of Operations and Organization












7



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##### Table of Contents



Note 3


Significant Accounting Policies




|   |                                                                            
|-- | ---------------------------------------------------------------------------
|a) | Principles of Consolidation and the Preparation of Financial
    Statements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | These financial statements are prepared in accordance with
    Canadian generally accepted accounting principles
    (GAAP) which, in the case of the Company, differ in
    certain respects from those in the United States. These
    differences are described in note 19, Reconciliation to
    Accounting Principles Generally Accepted in the United States.                                                                        
|
| | The preparation of financial statements in conformity with
    Canadian GAAP requires management to make estimates and
    assumptions that affect the reported amounts of assets and
    liabilities and disclosure of contingent assets and liabilities
    at the date of the financial statements and the reported amounts
    of revenues and expenses during the reported period. Actual
    results could differ from these estimates.
|
| | The consolidated financial statements include the accounts of
    the Company and its subsidiaries.                                                                                                                                                                                                                                                                                                                                          
|
| | Substantially all of the Companys upstream activities are
    conducted jointly with third parties and accordingly the
    accounts reflect the Companys proportionate share of the
    assets, liabilities, revenues, expenses and cash flow from these
    activities.                                                                                                                                                                   



|   |                          
|-- | -------------------------
|b) | Cash and Cash Equivalents



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash equivalents consist of cash on hand and deposits
    with a maturity of less than three months at the time of
    purchase.



|   |                    
|-- | -------------------
|c) | Inventory Valuation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Crude oil, natural gas, refined petroleum products and purchased
    sulphur inventories are valued at the lower of cost or net
    realizable value. Cost is determined using average cost or on a
    first-in, first-out basis, as appropriate. Materials and
    supplies are valued at the lower of average cost or net
    realizable value. Cost consists of raw material, labour, direct
    overhead and transportation. Intersegment profits are eliminated.



|   |                              
|-- | -----------------------------
|d) | Property, Plant and Equipment



|   |            
|-- | -----------
|i) | Oil and Gas



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company employs the full cost method of accounting for oil
    and gas interests whereby all costs of acquisition, exploration
    for and development of oil and gas reserves are capitalized and
    accumulated within cost centres on a country-by-country basis.
    Such costs include land acquisition, geological and geophysical
    activity, drilling of productive and non-productive wells,
    carrying costs directly related to unproved properties and
    administrative costs directly related to exploration and
    development activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | The provision for depletion of oil and gas properties and
    depreciation of associated production facilities is calculated
    using the unit of production method, based on gross proved oil
    and gas reserves as estimated by the Companys engineers,
    for each cost centre. Depreciation of gas plants and certain
    other oil and gas facilities is provided using the straight-line
    method based on their estimated useful lives. Costs subject to
    depletion and depreciation include both the estimated costs
    required to develop proved undeveloped reserves and the
    associated addition to the asset retirement obligations. In the
    normal course of operations, retirements of oil and gas
    interests are accounted for by charging the asset cost, net of
    any proceeds, to accumulated depletion or depreciation. Gains or
    losses on the disposition of oil and gas properties are not
    recognized unless the gain or loss changes the depletion rate by
    20 percent or more.
|
| | Costs of acquiring and evaluating significant unproved oil and
    gas interests are excluded from costs subject to depletion and
    depreciation until it is determined that proved oil and gas
    reserves are attributable to such interests or until impairment
    occurs. Costs of major development projects are excluded from
    costs subject to depletion and depreciation until proved
    developed reserves have been attributed to a portion of the
    property or the property is determined to be impaired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Impairment losses are recognized when the carrying amount of a
    cost centre exceeds the sum of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the undiscounted cash flow expected to result from production
    from proved reserves;
|
| |  | the costs of unproved properties, less impairment; and                                 
|
| |  | the costs of major development projects, less impairment.                              



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | The amount of impairment loss is determined to be the amount by
    which the carrying amount of the cost centre exceeds the
    sum of:



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the fair value of proved and probable reserves; and                                                                                            
|
| |  | the cost, less impairment, of unproved properties and major
    development projects that do not have probable reserves
    attributed to them.



|    |                          
|--- | -------------------------
|ii) | Other Plant and Equipment



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Depreciation for substantially all other plant and equipment,
    except upgrading assets, is provided using the straight-line
    method based on estimated useful lives of assets which range
    from five to 25 years. Depreciation for upgrading assets is
    provided using the unit of production method, based on the
    plants estimated productive life. Repairs and maintenance
    costs, other than major turnaround costs, are charged to
    earnings as incurred. Major turnaround costs are deferred to
    other assets when incurred and amortized over the estimated
    period of time to the next scheduled turnaround. At the time of
    disposition of plant and equipment, accounts are relieved of the
    asset values and accumulated depreciation and any resulting gain
    or loss is reflected in earnings.

8



---



##### Table of Contents





|     |                             
|---- | ----------------------------
|iii) | Asset Retirement Obligations



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The recognition of the fair value of obligations associated with
    the retirement of tangible long-lived assets is recorded in the
    period that the asset is put into use, with a corresponding
    increase to the carrying value of the related asset. The
    obligations recognized are legal obligations. The liability is
    accreted over time for changes in the fair value of the
    liability through charges to accretion which is included in cost
    of sales and operating expenses. The liability will also be
    adjusted to reflect revisions to the previous estimates of the
    undiscounted obligation. The costs capitalized to the related
    assets are amortized to earnings in a manner consistent with the
    depletion, depreciation and amortization of the underlying
    asset. Retirement expenditures are charged to the accumulated
    liability as incurred.



|    |                     
|--- | --------------------
|iv) | Capitalized Interest



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | Interest is capitalized on certain major capital projects based
    on the Companys long-term cost of borrowing.



|   |                                            
|-- | -------------------------------------------
|e) | Impairment or Disposal of Long-lived Assets



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | An impairment loss is recognized when the carrying value of a
    long-lived asset is not recoverable and exceeds its fair value.
    Testing for recoverability uses the undiscounted cash flows
    expected from the assets use and disposition. To test for
    and measure impairment, long-lived assets are grouped at the
    lowest level for which identifiable cash flows are largely
    independent.                                                                                                                                                                                                                                                                                     
|
| | A long-lived asset that meets the conditions as held for sale is
    measured at the lower of its carrying amount or fair value less
    costs to sell. Such assets are not amortized while they are
    classified as held for sale. The results of operations of a
    component of an entity that has been disposed of, or is
    classified as held for sale, are reported in discontinued
    operations if: i) the operations and cash flows of the
    component have been or will be eliminated as a result of the
    disposal transaction; and, ii) the entity will not have a
    significant continuing involvement in the operations of the
    component after the disposal transaction.



|   |         
|-- | --------
|f) | Goodwill



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill is the excess of the purchase price paid over the fair
    value of net assets acquired. Goodwill is subject to impairment
    tests on at least an annual basis or sooner if there are
    indicators of impairment. The Company tests impairment annually
    in the fourth quarter of each year. To assess impairment, the
    fair value of the reporting unit is compared with its carrying
    amount. If any potential impairment is indicated, then it is
    quantified by comparing the carrying value of goodwill to its
    fair value determined, based on the fair value of the assets and
    liabilities of the reporting unit. Impairment losses would be
    recognized in current period earnings.



|   |                                 
|-- | --------------------------------
|g) | Derivative Financial Instruments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Derivative financial instruments are utilized by the Company to
    manage market risk against the volatility in commodity prices,
    foreign exchange rates and interest rate exposures. The
    Companys policy is not to utilize derivative financial
    instruments for speculative purposes. The Company may choose to
    designate derivative financial instruments as hedges.                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | When applicable, at the inception of the hedge, the Company
    formally documents the designation of the hedge, the risk
    management objectives, the hedging relationships between hedged
    items and hedging items and the method for testing the
    effectiveness of the hedge which must be reasonably assured over
    the term of the hedge. This process includes linking all
    derivatives to specific assets and liabilities on the balance
    sheet or to specific firm commitments or forecasted
    transactions. The Company formally assesses, both at the
    inception of the hedge and on an ongoing basis, whether the
    derivatives that are used in hedging transactions are highly
    effective in offsetting changes in fair values or cash flows of
    hedged items.
|
| | The Company may enter into commodity price contracts to hedge
    anticipated sales of oil and natural gas production to manage
    its exposure to price fluctuations. Gains and losses from these
    contracts are recognized in upstream oil and gas revenues as the
    related sales occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | The Company may enter into commodity price contracts to offset
    fixed price contracts entered into with customers and suppliers
    in order to retain market prices while meeting customer or
    supplier pricing requirements. Gains and losses from these
    contracts are recognized in midstream revenues or cost of sales
    as the related sales or purchases occur.                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | The Company may enter into interest rate swap agreements to
    hedge its fixed and floating interest rate mix on long-term
    debt. Gains and losses from these contracts are recognized as an
    adjustment to the interest expense on the hedged debt
    instrument. The related amount payable or receivable from the
    counterparties is recorded as an adjustment to accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | The Company may enter into foreign exchange contracts to hedge
    its foreign currency exposures on U.S. dollar denominated
    long-term debt. Gains and losses on these instruments are
    accrued under other current, or non-current, assets or
    liabilities on the balance sheet and recognized in foreign
    exchange in the period to which they relate, offsetting the
    respective foreign exchange gains and losses recognized on the
    underlying foreign currency long-term debt. The forward premium
    or discount on the foreign exchange contract is amortized as an
    adjustment to interest expense over the term of the contract.                                                                                                                                       
|
| | The Company may enter into foreign exchange forwards and foreign
    exchange collars to hedge anticipated U.S. dollar
    denominated oil and natural gas sales. Gains and losses on
    these instruments are recognized as an adjustment to upstream
    oil and gas revenues when the sale is recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Realized and unrealized gains or losses associated with
    derivative financial instruments which have been terminated or
    cease to be effective as a hedge prior to maturity are deferred
    under current or non-current assets or liabilities on the
    balance sheet and recognized into income in the period in which
    the underlying hedged transaction is recognized in income. In
    the event that a designated hedged item is sold, extinguishes or
    matures prior to the termination of the related derivative
    financial instrument, any realized or unrealized gain or loss is
    recognized in earnings.                                                                                                                                                                 

9



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##### Table of Contents





|   |                         
|-- | ------------------------
|h) | Employee Future Benefits



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company provides a defined contribution pension plan and a
    post-retirement health and dental care plan to qualified
    employees. The Company also maintains a defined benefit pension
    plan for a small number of employees who did not choose to join
    the defined contribution pension plan in 1991. The cost of the
    pension benefits earned by employees in the defined contribution
    pension plan is paid and expensed when incurred. The cost of the
    benefits earned by employees in the post-retirement health and
    dental care plan and defined benefit pension plan is charged to
    earnings as services are rendered using the projected benefit
    method prorated on service. The cost of the post-retirement
    health and dental care plan and defined benefit pension plan
    reflects a number of assumptions that affect the expected future
    benefit payments. These assumptions include, but are not limited
    to, attrition, mortality, the rate of return on pension plan
    assets and salary escalations for the defined benefit pension
    plan and expected health care cost trends for the
    post-retirement health and dental care plan. The plan assets are
    valued at fair value for the purposes of calculating the
    expected return on plan assets.
|
| | Adjustments arising out of plan amendments, changes in
    assumptions and experience gains and losses are normally
    amortized over the expected remaining average service life of
    the employee group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



|   |                    
|-- | -------------------
|i) | Future Income Taxes



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company follows the liability method of accounting for
    income taxes. Future income tax assets and liabilities are
    recognized at expected tax rates in effect when temporary
    differences between the tax basis and the carrying value of the
    Companys assets and liabilities reverse. The effect of a
    change to the tax rate on the future tax assets and liabilities
    is recognized in earnings when substantively enacted.



|   |                          
|-- | -------------------------
|j) | Non-monetary Transactions



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Non-monetary transactions are measured based on fair value
    unless the transaction lacks commercial substance or is an
    exchange of product or property held for sale in the ordinary
    course of business.



|   |                    
|-- | -------------------
|k) | Revenue Recognition



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenues from the sale of crude oil, natural gas, natural gas
    liquids, synthetic crude oil, purchased commodities and refined
    petroleum products are recorded on a gross basis when title
    passes to an external party. Sales between the business segments
    of the Company are eliminated from sales and operating revenues
    and cost of sales. Revenues associated with the sale of
    transportation, processing and natural gas storage services are
    recognized when the services are provided.



|   |                             
|-- | ----------------------------
|l) | Foreign Currency Translation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Results of foreign operations, all of which are considered
    financially and operationally integrated, are translated to
    Canadian dollars at the monthly average exchange rates for
    revenue and expenses, except for depreciation and depletion
    which are translated at the rate of exchange applicable to the
    related assets. Monetary assets and liabilities are translated
    at current exchange rates and non-monetary assets and
    liabilities are translated using historical rates of exchange.
    Gains or losses resulting from these translation adjustments are
    included in earnings.



|   |                         
|-- | ------------------------
|m) | Stock-based Compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective January 1, 2004, the Company adopted the Canadian
    Institute of Chartered Accountants (CICA)
    section 3870, Stock-based Compensation and Other
    Stock-based Payments, retroactively without restatement of
    prior periods. In accordance with the Companys stock
    option plan, common share options may be granted to directors,
    officers and certain other employees. The recommendations
    require the Company to record compensation expense over the
    vesting period based on the fair value of options granted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Effective June 1, 2004, the Company amended its stock
    option plan to a tandem plan that provides the stock option
    holder with the right to exercise the stock option or surrender
    the option for a cash payment. A liability for expected cash
    settlements is accrued over the vesting period of the stock
    options based on the difference between the exercise price of
    the stock options and the market price of the Companys
    common shares. The liability is revalued to reflect changes in
    the market price of the Companys common shares and the net
    change is recognized in earnings. When stock options are
    surrendered for cash, the cash settlement paid reduces the
    outstanding liability. When stock options are exercised for
    common shares, consideration paid by the stock option holders
    and the previously recognized liability associated with the
    stock options are recorded as share capital. Accrued
    compensation for an option that is forfeited is adjusted to
    earnings by decreasing the compensation cost in the period
    of forfeiture.



|   |                   
|-- | ------------------
|n) | Earnings per Share



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Basic common shares outstanding are the weighted average number
    of common shares outstanding for each period. The calculation of
    basic earnings per common share is based on net earnings divided
    by the weighted average number of common shares outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Diluted common shares outstanding are calculated using the
    treasury stock method, which assumes that any proceeds received
    from in-the-money options would be used to buy back common
    shares at the average market price for the period. However,
    since the Company has a tandem stock option plan and accrues a
    liability for expected cash settlements, the potential common
    shares issuable upon exercise associated with the stock options
    are not included in diluted common shares outstanding. Shares
    potentially issuable on the settlement of the capital securities
    have not been included in the determination of diluted earnings
    per common share, as the Company has neither the obligation nor
    intention to settle amounts due through the issuance
    of shares.



|   |                 
|-- | ----------------
|o) | Reclassification



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Certain prior years amounts have been reclassified to
    conform with current presentation.

10



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##### Table of Contents



Note 4


Accounts Receivable


|                                |  |      |     |   |      |   |     |      |  |   |     |  
|------------------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                |  | 2005 |     |   | 2004 |   |     | 2003 | 
|                                |  |      |     |   |      |   |     |      | 
|Trade receivables               |  | $    | 854 |   |      | $ | 448 |      |  | $ | 568 |  
|Investment tax credit           |  |      |    |   |      |   |    |      |  |   | 48  |  
|Allowance for doubtful accounts |  |      | (10 | ) |      |   | (10 | )    |  |   | (12 | )
|Other                           |  |      | 12  |   |      |   | 8   |      |  |   | 14  |  
|                                |  |      |     |   |      |   |     |      | 
|                                |  | $    | 856 |   |      | $ | 446 |      |  | $ | 618 |  
|                                |  |      |     |   |      |   |     |      | 

Sale of Accounts Receivable








Note 5


Inventories


|                                         |  |      |     |  |      |   |     |      |  |   |     | 
|---------------------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                                         |  | 2005 |     |  | 2004 |   |     | 2003 | 
|                                         |  |      |     |  |      |   |     |      | 
|Crude oil and refined petroleum products |  | $    | 241 |  |      | $ | 159 |      |  | $ | 115 | 
|Natural gas                              |  |      | 207 |  |      |   | 100 |      |  |   | 69  | 
|Materials, supplies and other            |  |      | 23  |  |      |   | 15  |      |  |   | 14  | 
|                                         |  |      |     |  |      |   |     |      | 
|                                         |  | $    | 471 |  |      | $ | 274 |      |  | $ | 198 | 
|                                         |  |      |     |  |      |   |     |      | 

Note 6


Property, Plant and Equipment








|              |  |      |       |  |      |   |       |      |  |   |       | 
|------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|              |  | 2005 |       |  | 2004 |   |       | 2003 | 
|              |  |      |       |  |      |   |       |      | 
|Canada        |  | $    | 2,317 |  |      | $ | 2,399 |      |  | $ | 1,814 | 
|International |  |      | 127   |  |      |   | 129   |      |  |   | 54    | 
|              |  |      |       |  |      |   |       |      | 
|              |  | $    | 2,444 |  |      | $ | 2,528 |      |  | $ | 1,868 | 
|              |  |      |       |  |      |   |       |      | 



|                    |  |      |       |  |      |   |       |      |  |   |       |                |  |      |       |  |                   |   |       |  |  |  |    | 
|------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | -------------- |  | ---- | ----- |  | ----------------- | - | ----- |  |  |  | -- | 
|                    |  |      |       |  |      |   |       |      |  |   |       | Price increase | 
|Canada              |  | 2006 |       |  | 2007 |   |       | 2008 |  |   | 2009  |                |  | 2010 |       |  | from 2010 to 2025 |  
|                    |  |      |       |  |      |   |       |      |  |   |       |                |  |      |       |  |                   |  
|                    |  |      |       |  |      |   |       |      |  |   |       | (percent)      | 
|Crude oil ($/bbl)   |  | $    | 50.08 |  |      | $ | 46.57 |      |  | $ | 39.13 |                |  | $    | 37.12 |  |                   | $ | 36.83 |  |  |  | 30 | 
|Natural gas ($/mcf) |  |      | 10.23 |  |      |   | 8.97  |      |  |   | 7.40  |                |  |      | 6.82  |  |                   |   | 6.69  |  |  |  | 26 | 

Note 7


Corporate Acquisitions










11



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##### Table of Contents





|                    |                               |        |     |          |        |   |     |       |  
|------------------- | ----------------------------- | ------ | --- | -------- | ------ | - | --- | ----- | -
|                    |                               |        |     | Marathon |       
|                    |                               | Temple |     |          | Canada |  
|                    |                               |        |     |          |        |  
|Net assets acquired |                               |        |     |          |        |   |     |      
|                    | Working capital (1)           |        | $   | (17      | )      |   | $   | (15   | )
|                    | Property, plant and equipment |        |     | 138      |        |   |     | 1,008 |  
|                    | Goodwill (2)                  |        |     | 20       |        |   |     | 140   |  
|                    | Asset retirement obligations  |        |     |         |        |   |     | (38   | )
|                    | Future income taxes           |        |     | (39      | )      |   |     | (264  | )
|                    |                               |        |     |          |        |  
|                    |                               | $      | 102 |          |        | $ | 831 |      
|                    |                               |        |     |          |        |  






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Working capital of Marathon Canada acquired included cash of
    $22 million.                                                                    
|   
|(2) | Allocated to the Companys upstream segment and not
    deductible for income tax purposes. Refer to note 1,
    Segmented Financial Information.

Note 8


Cash Flows  Change in Non-cash Working
Capital




|   |                                                   
|-- | --------------------------------------------------
|a) | Change in non-cash working capital was as follows:

|                                                |                                          |      |     |      |      |  |     |      |   |  |     |     |  
|----------------------------------------------- | ---------------------------------------- | ---- | --- | ---- | ---- |  | --- | ---- | - |  | --- | --- | -
|                                                |                                          | 2005 |     |      | 2004 |  |     | 2003 |  
|                                                |                                          |      |     |      |      |  |     |      |  
|Decrease (increase) in non-cash working capital |                                          |      |     |      |      |  |     |      |   |  |     |    
|                                                | Accounts receivable                      |      | $   | (410 | )    |  | $   | 209  |   |  | $   | (7  | )
|                                                | Inventories                              |      |     | (197 | )    |  |     | (77  | ) |  |     | 28  |  
|                                                | Prepaid expenses                         |      |     | 17   |      |  |     | (12  | ) |  |     | (10 | )
|                                                | Accounts payable and accrued liabilities |      |     | 984  |      |  |     | 323  |   |  |     | 270 |  
|                                                |                                          |      |     |      |      |  |     |      |  
|Change in non-cash working capital              |                                          |      | 394 |      |      |  | 443 |      |   |  | 281 |    
|Relating to:                                    |                                          |      |     |      |      |  |     |      |   |  |     |    
|                                                | Financing activities                     |      |     | 255  |      |  |     | 337  |   |  |     | 48  |  
|                                                | Investing activities                     |      |     | 211  |      |  |     | (63  | ) |  |     | 120 |  
|                                                |                                          |      |     |      |      |  |     |      |  
|                                                | Operating activities                     |      | $   | (72  | )    |  | $   | 169  |   |  | $   | 113 |  
|                                                |                                          |      |     |      |      |  |     |      |  

b)  Other cash flow information:


|                   |  |      |     |  |      |   |     |      |  |   |     | 
|------------------ |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                   |  | 2005 |     |  | 2004 |   |     | 2003 | 
|                   |  |      |     |  |      |   |     |      | 
|Cash taxes paid    |  | $    | 154 |  |      | $ | 213 |      |  | $ | 69  | 
|Cash interest paid |  | $    | 147 |  |      | $ | 143 |      |  | $ | 165 | 

Note 9


Bank Operating Loans


short-term short-term


Note 10


Accounts Payable and Accrued Liabilities


|                               |  |      |       |  |      |   |       |      |  |   |       | 
|------------------------------ |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                               |  | 2005 |       |  | 2004 |   |       | 2003 | 
|                               |  |      |       |  |      |   |       |      | 
|Trade payables                 |  | $    | 88    |  |      | $ | 110   |      |  | $ | 58    | 
|Accrued liabilities            |  |      | 1,247 |  |      |   | 760   |      |  |   | 804   | 
|Dividend payable               |  |      | 530   |  |      |   | 280   |      |  |   | 42    | 
|Commodity contract settlements |  |      |      |  |      |   | 50    |      |  |   | 8     | 
|Stock-based compensation       |  |      | 130   |  |      |   | 49    |      |  |   |      | 
|Current income taxes           |  |      | 164   |  |      |   | 119   |      |  |   | 117   | 
|Other                          |  |      | 232   |  |      |   | 130   |      |  |   | 107   | 
|                               |  |      |       |  |      |   |       |      | 
|                               |  | $    | 2,391 |  |      | $ | 1,498 |      |  | $ | 1,136 | 
|                               |  |      |       |  |      |   |       |      | 

12



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##### Table of Contents



Note 11


Long-term Debt


|               |                            |                             |  |              |      |   |                    |       |     |   |       |       |     |      |       |       |      |  |   |       |     |  |   |       |     |  |   |       |     | 
|-------------- | -------------------------- | --------------------------- |  | ------------ | ---- | - | ------------------ | ----- | --- | - | ----- | ----- | --- | ---- | ----- | ----- | ---- |  | - | ----- | --- |  | - | ----- | --- |  | - | ----- | --- | 
|               |                            |                             |  | Cdn $ Amount |      |   | U.S. $ Denominated |      
|               |                            |                             |  |              |      |   |                    |      
|               |                            | Maturity                    |  |              | 2005 |   |                    | 2004  |     |   | 2003  |       |     | 2005 |       |       | 2004 |  |   | 2003  |    
|               |                            |                             |  |              |      |   |                    |       |     |   |       |       |     |      |       |       |      |  |   |       |    
|Long-term debt |                            |                             |  |              |      |   |                    |       |     |   |       |       |     |      |       |       |      |  |   |       |     |  |   |       |     |  |   |      
|               |                            | Syndicated credit facility  |  |              |      |   |                    | $     |    |   |       | $     | 70  |      |       | $     |     |  |   | $     |    |  |   | $     |    |  |   | $     |    | 
|               |                            | Bilateral credit facilities |  |              |      |   |                    |       |    |   |       |       | 40  |      |       |       |     |  |   |       |    |  |   |       |    |  |   |       |    | 
|               |                            | 7.125% notes                |  |              | 2006 |   |                    |       | 175 |   |       |       | 181 |      |       |       | 194  |  |   |       | 150 |  |   |       | 150 |  |   |       | 150 | 
|               |                            | 6.25% notes                 |  |              | 2012 |   |                    |       | 467 |   |       |       | 481 |      |       |       | 517  |  |   |       | 400 |  |   |       | 400 |  |   |       | 400 | 
|               |                            | 7.55% debentures            |  |              | 2016 |   |                    |       | 233 |   |       |       | 241 |      |       |       | 258  |  |   |       | 200 |  |   |       | 200 |  |   |       | 200 | 
|               |                            | 6.15% notes                 |  |              | 2019 |   |                    |       | 350 |   |       |       | 361 |      |       |       |     |  |   |       | 300 |  |   |       | 300 |  |   |       |    | 
|               |                            | Private placement notes     |  |              |      |   |                    |       |    |   |       |       | 18  |      |       |       | 41   |  |   |       |    |  |   |       | 15  |  |   |       | 32  | 
|               |                            | 8.45% senior secured bonds  |  |              | 2006 |   |                    |       | 99  |   |       |       | 140 |      |       |       | 188  |  |   |       | 85  |  |   |       | 117 |  |   |       | 145 | 
|               |                            | Medium-term notes           |  |              |      |   |                    |       |    |   |       |       |    |      |       |       | 200  |  |   |       |    |  |   |       |    |  |   |       |    | 
|               |                            | Medium-term notes           |  |              | 2007 |   |                    |       | 100 |   |       |       | 100 |      |       |       | 100  |  |   |       |    |  |   |       |    |  |   |       |    | 
|               |                            | Medium-term notes           |  |              | 2009 |   |                    |       | 200 |   |       |       | 200 |      |       |       | 200  |  |   |       |    |  |   |       |    |  |   |       |    | 
|               |                            | 8.90% capital securities    |  |              | 2028 |   |                    |       | 262 |   |       |       | 271 |      |       |       | 291  |  |   |       | 225 |  |   |       | 225 |  |   |       | 225 | 
|               |                            |                             |  |              |      |   |                    |       |     |   |       |       |     |      |       |       |      |  |   |       |    
|               | Total long-term debt       |                             |  |              |      |   |                    | 1,886 |     |   |       | 2,103 |     |      |       | 1,989 |      |  | $ | 1,360 |     |  | $ | 1,407 |     |  | $ | 1,152 |    
|               |                            |                             |  |              |      |   |                    |       |     |   |       |       |     |      |       |       |      |  |   |       |    
|               | Amount due within one year |                             |  |              |      |   |                    | (274  | )   |   |       | (56   | )   |      |       | (259  | )    |  |   |       |     |  |   |       |     |  |   |       |    
|               |                            |                             |  |              |      |   |                    |       |     |   |       |       |     |      |       |       |      |  |   |       |    
|               |                            |                             |  |              |      | $ | 1,612              |       |     | $ | 2,047 |       |     | $    | 1,730 |       |      |  |   |       |     |  |   |       |     |  |   |      
|               |                            |                             |  |              |      |   |                    |       |     |   |       |       |     |      |       |       |      |  |   |       |    



|                   |  |      |      |   |      |   |     |      |  |   |     |  
|------------------ |  | ---- | ---- | - | ---- | - | --- | ---- |  | - | --- | -
|                   |  | 2005 |      |   | 2004 |   |     | 2003 | 
|                   |  |      |      |   |      |   |     |      | 
|Long-term debt     |  | $    | 144  |   |      | $ | 133 |      |  | $ | 158 |  
|Short-term debt    |  |      | 4    |   |      |   | 3   |      |  |   | 2   |  
|                   |  |      |      |   |      |   |     |      | 
|                   |  |      | 148  |   |      |   | 136 |      |  |   | 160 |  
|Amount capitalized |  |      | (114 | ) |      |   | (75 | )    |  |   | (52 | )
|                   |  |      |      |   |      |   |     |      | 
|                   |  |      | 34   |   |      |   | 61  |      |  |   | 108 |  
|Interest income    |  |      | (2   | ) |      |   | (1  | )    |  |   | (6  | )
|                   |  |      |      |   |      |   |     |      | 
|                   |  | $    | 32   |   |      | $ | 60  |      |  | $ | 102 |  
|                   |  |      |      |   |      |   |     |      | 



|                                                                  |  |      |     |   |      |   |      |      |  |   |      |  
|----------------------------------------------------------------- |  | ---- | --- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                  |  | 2005 |     |   | 2004 |   |      | 2003 | 
|                                                                  |  |      |     |   |      |   |      |      | 
|Gain on translation of U.S. dollar denominated
    long-term debt |  | $    | (51 | ) |      | $ | (150 | )    |  | $ | (382 | )
|Cross currency swaps                                              |  |      | 14  |   |      |   | 27   |      |  |   | 73   |  
|Other losses                                                      |  |      | 6   |   |      |   | 3    |      |  |   | 27   |  
|                                                                  |  |      |     |   |      |   |      |      | 
|                                                                  |  | $    | (31 | ) |      | $ | (120 | )    |  | $ | (282 | )
|                                                                  |  |      |     |   |      |   |      |      | 



Credit Facilities


three-year




Notes and Debentures


semi-annually.


semi-annually.


25-month


13



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##### Table of Contents



semi-annually. semi-annually.


medium-term


|         |  |        |     |  |               |  |       |               |  |              
|-------- |  | ------ | --- |  | ------------- |  | ----- | ------------- |  | -------------
|Issue    |  | Amount |     |  | Interest Rate |  |       | Maturity Date
|         |  |        |     |  |               |  |       |              
|Series B |  | $      | 100 |  |               |  | 6.85% |               |  | February 2007
|Series E |  | $      | 200 |  |               |  | 6.95% |               |  | July 2009    

semi-annually


semi-annually semi-annually.




Capital Securities Restatement




|                                    |                                      |                                          |  |   |        |   |  |             |      |   |             |   |       |        |  |   |             |   |  |   |      |   |  |   |       |  
|----------------------------------- | ------------------------------------ | ---------------------------------------- |  | - | ------ | - |  | ----------- | ---- | - | ----------- | - | ----- | ------ |  | - | ----------- | - |  | - | ---- | - |  | - | ----- | -
|                                    |                                      | 2004                                     |  |   | 2003   |  
|                                    |                                      |                                          |  |   |        |  
|                                    |                                      | As Reported                              |  |   | Change |   |  | As Restated |      |   | As Reported |   |       | Change |  |   | As Restated |  
|                                    |                                      |                                          |  |   |        |   |  |             |      |   |             |   |       |        |  |   |             |  
|Consolidated Balance Sheets         |                                      |                                          |  |   |        |   |  |             |      |   |             |   |       |        |  |   |             |   |  |   |      |   |  |  
|                                    | Assets                               |                                          |  |   |        |   |  |             |      |   |             |   |       |        |  |   |             |   |  |   |      |   |  |   |      
|                                    |                                      | Other assets                             |  | $ | 106    |   |  | $           | 2    |   |             | $ | 108   |        |  | $ | 112         |   |  | $ | 3    |   |  | $ | 115   |  
|                                    | Liabilities and Shareholders Equity |                                          |  |   |        |   |  |             |      |   |             |   |       |        |  |   |             |   |  |   |      |   |  |   |      
|                                    |                                      | Accounts payable and accrued liabilities |  |   | 1,489  |   |  |             | 9    |   |             |   | 1,498 |        |  |   | 1,126       |   |  |   | 10   |   |  |   | 1,136 |  
|                                    |                                      | Long-term debt                           |  |   | 1,776  |   |  |             | 271  |   |             |   | 2,047 |        |  |   | 1,439       |   |  |   | 291  |   |  |   | 1,730 |  
|                                    |                                      | Capital securities and accrued return    |  |   | 278    |   |  |             | (278 | ) |             |   |      |        |  |   | 298         |   |  |   | (298 | ) |  |   |      |  
|Consolidated Statements of Earnings |                                      |                                          |  |   |        |   |  |             |      |   |             |   |       |        |  |   |             |   |  |   |      |   |  |  
|                                    |                                      | Interest  net                           |  | $ | 33     |   |  | $           | 27   |   |             | $ | 60    |        |  | $ | 73          |   |  | $ | 29   |   |  | $ | 102   |  
|                                    |                                      | Foreign exchange                         |  |   | (99    | ) |  |             | (21  | ) |             |   | (120  | )      |  |   | (215        | ) |  |   | (67  | ) |  |   | (282  | )
|                                    |                                      | Future income taxes                      |  |   | 103    |   |  |             | (6   | ) |             |   | 97    |        |  |   | 329         |   |  |   | 2    |   |  |   | 331   |  
|                                    |                                      | Net earnings                             |  |   | 1,006  |   |  |             |     |   |             |   | 1,006 |        |  |   | 1,334       |   |  |   | 36   |   |  |   | 1,370 |  

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Note 12


Other Long-term Liabilities


|                             |  |      |     |  |      |   |     |      |  |   |     | 
|---------------------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                             |  | 2005 |     |  | 2004 |   |     | 2003 | 
|                             |  |      |     |  |      |   |     |      | 
|Asset retirement obligations |  | $    | 557 |  |      | $ | 509 |      |  | $ | 432 | 
|Cross currency swaps         |  |      | 40  |  |      |   | 68  |      |  |   | 41  | 
|Interest rate swaps          |  |      | 42  |  |      |   | 18  |      |  |   | 26  | 
|Employee future benefits     |  |      | 27  |  |      |   | 23  |      |  |   | 20  | 
|Stock-based compensation     |  |      | 46  |  |      |   | 14  |      |  |   |    | 
|Other                        |  |      | 18  |  |      |   |    |      |  |   |    | 
|                             |  |      |     |  |      |   |     |      | 
|                             |  | $    | 730 |  |      | $ | 632 |      |  | $ | 519 | 
|                             |  |      |     |  |      |   |     |      | 

Asset Retirement Obligations






|                                                  |  |      |     |   |      |   |     |      |  |   |     |  
|------------------------------------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                                  |  | 2005 |     |   | 2004 |   |     | 2003 | 
|                                                  |  |      |     |   |      |   |     |      | 
|Asset retirement obligations at beginning of year |  | $    | 509 |   |      | $ | 432 |      |  | $ | 286 |  
|Liabilities incurred                              |  |      | 63  |   |      |   | 13  |      |  |   | 158 |  
|Liabilities disposed                              |  |      | (7  | ) |      |   |    |      |  |   |    |  
|Liabilities settled                               |  |      | (41 | ) |      |   | (40 | )    |  |   | (34 | )
|Revisions                                         |  |      |    |   |      |   | 77  |      |  |   |    |  
|Accretion                                         |  |      | 33  |   |      |   | 27  |      |  |   | 22  |  
|                                                  |  |      |     |   |      |   |     |      | 
|Asset retirement obligations at end of year       |  | $    | 557 |   |      | $ | 509 |      |  | $ | 432 |  
|                                                  |  |      |     |   |      |   |     |      | 

Note 13


Income Taxes




|                                    |                                                                     |      |       |       |      |   |       |       |   |   |       |       |  
|----------------------------------- | ------------------------------------------------------------------- | ---- | ----- | ----- | ---- | - | ----- | ----- | - | - | ----- | ----- | -
|                                    |                                                                     | 2005 |       |       | 2004 |   |       | 2003  |  
|                                    |                                                                     |      |       |       |      |   |       |       |  
|Earnings before income taxes        |                                                                     |      |       |       |      |   |       |       |   |   |       |      
|                                    | Canadian                                                            |      | $     | 2,553 |      |   | $     | 1,165 |   |   | $     | 1,625 |  
|                                    | Foreign jurisdictions                                               |      |       | 259   |      |   |       | 240   |   |   |       | 223   |  
|                                    |                                                                     |      |       |       |      |   |       |       |  
|                                    |                                                                     |      | 2,812 |       |      |   | 1,405 |       |   |   | 1,848 |      
|Statutory income tax rate (percent) |                                                                     |      | 38.4  |       |      |   | 39.3  |       |   |   | 40.2  |      
|                                    |                                                                     |      |       |       |      |   |       |       |  
|Expected income tax                 |                                                                     |      | 1,080 |       |      |   | 552   |       |   |   | 743   |      
|Effect on income tax of:            |                                                                     |      |       |       |      |   |       |       |   |   |       |      
|                                    | Royalties, lease rentals and mineral taxes payable to
    the crown |      |       | 105   |      |   |       | 153   |   |   |       | 175   |  
|                                    | Resource allowance on Canadian production income                    |      |       | (133  | )    |   |       | (156  | ) |   |       | (183  | )
|                                    | Rate benefit on partnership earnings                                |      |       | (69   | )    |   |       | (42   | ) |   |       | (23   | )
|                                    | Change in statutory tax rate                                        |      |       | (4    | )    |   |       | (40   | ) |   |       | (161  | )
|                                    | Non-deductible capital taxes                                        |      |       | 15    |      |   |       | 20    |   |   |       | 22    |  
|                                    | Capital gains and losses                                            |      |       | (140  | )    |   |       | (23   | ) |   |       | (58   | )
|                                    | Foreign jurisdictions                                               |      |       | (14   | )    |   |       | (13   | ) |   |       | (16   | )
|                                    | Other  net                                                         |      |       | (31   | )    |   |       | (52   | ) |   |       | (21   | )
|                                    |                                                                     |      |       |       |      |   |       |       |  
|Income tax expense                  |                                                                     | $    | 809   |       |      | $ | 399   |       |   | $ | 478   |      
|                                    |                                                                     |      |       |       |      |   |       |       |  

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|                       |                                               |      |       |       |      |   |       |       |  |   |       |       | 
|---------------------- | --------------------------------------------- | ---- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                       |                                               | 2005 |       |       | 2004 |   |       | 2003  | 
|                       |                                               |      |       |       |      |   |       |       | 
|Future tax liabilities |                                               |      |       |       |      |   |       |       |  |   |       |      
|                       | Property, plant and equipment                 |      | $     | 3,487 |      |   | $     | 2,949 |  |   | $     | 2,826 | 
|                       | Foreign exchange gains taxable on realization |      |       | 60    |      |   |       | 56    |  |   |       | 32    | 
|                       | Other temporary differences                   |      |       | 2     |      |   |       | 5     |  |   |       | 2     | 
|                       |                                               |      |       |       |      |   |       |       | 
|                       |                                               |      | 3,549 |       |      |   | 3,010 |       |  |   | 2,860 |      
|Future tax assets      |                                               |      |       |       |      |   |       |       |  |   |       |      
|                       | Asset retirement obligations                  |      |       | 195   |      |   |       | 180   |  |   |       | 160   | 
|                       | Loss carry forwards                           |      |       |      |      |   |       | 11    |  |   |       | 2     | 
|                       | Provincial royalty rebates                    |      |       | 7     |      |   |       | 14    |  |   |       | 52    | 
|                       | Other temporary differences                   |      |       | 77    |      |   |       | 47    |  |   |       | 25    | 
|                       |                                               |      |       |       |      |   |       |       | 
|                       |                                               |      | 279   |       |      |   | 252   |       |  |   | 239   |      
|                       |                                               |      |       |       |      |   |       |       | 
|                       |                                               | $    | 3,270 |       |      | $ | 2,758 |       |  | $ | 2,621 |      
|                       |                                               |      |       |       |      |   |       |       | 

Note 14


Commitments and Contingencies






|                                              |  |      |       |  |      |   |       |      |  |   |      |       |  |      |     |  |      |   |     |       |  |   |     |  |  |   |       | 
|--------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ---- | ----- |  | ---- | --- |  | ---- | - | --- | ----- |  | - | --- |  |  | - | ----- | 
|                                              |  |      |       |  |      |   |       |      |  |   |      | After |  |      |    
|                                              |  | 2006 |       |  | 2007 |   |       | 2008 |  |   | 2009 |       |  | 2010 |     |  | 2010 |   |     | Total | 
|                                              |  |      |       |  |      |   |       |      |  |   |      |       |  |      |     |  |      |   |     |       | 
|Operating leases                              |  | $    | 81    |  |      | $ | 82    |      |  | $ | 76   |       |  | $    | 68  |  |      | $ | 63  |       |  | $ | 132 |  |  | $ | 502   | 
|Firm transportation agreements                |  |      | 169   |  |      |   | 133   |      |  |   | 110  |       |  |      | 68  |  |      |   | 50  |       |  |   | 149 |  |  |   | 679   | 
|Unconditional purchase obligations            |  |      | 616   |  |      |   | 656   |      |  |   | 565  |       |  |      | 127 |  |      |   | 44  |       |  |   | 9   |  |  |   | 2,017 | 
|Lease rentals and exploration work agreements |  |      | 50    |  |      |   | 54    |      |  |   | 44   |       |  |      | 44  |  |      |   | 81  |       |  |   | 154 |  |  |   | 427   | 
|Engineering and construction commitments      |  |      | 365   |  |      |   | 154   |      |  |   | 12   |       |  |      |    |  |      |   |    |       |  |   |    |  |  |   | 531   | 
|                                              |  |      |       |  |      |   |       |      |  |   |      |       |  |      |     |  |      |   |     |       | 
|                                              |  | $    | 1,281 |  |      | $ | 1,079 |      |  | $ | 807  |       |  | $    | 307 |  |      | $ | 238 |       |  | $ | 444 |  |  | $ | 4,156 | 
|                                              |  |      |       |  |      |   |       |      |  |   |      |       |  |      |     |  |      |   |     |       | 





Note 15


Share Capital








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Common Shares




|                  |                                     |                  |             |           |        |   |       |    | 
|----------------- | ----------------------------------- | ---------------- | ----------- | --------- | ------ | - | ----- | -- | 
|                  |                                     | Number of Shares |             |           | Amount |  
|                  |                                     |                  |             |           |        |  
|December 31, 2002 |                                     |                  | 417,873,601 |           |        | $ | 3,406 |   
|                  | Options and warrants exercised      |                  |             | 4,302,141 |        |   |       | 51 | 
|                  |                                     |                  |             |           |        |  
|December 31, 2003 |                                     |                  | 422,175,742 |           |        |   | 3,457 |   
|                  | Stock-based compensation  adoption |                  |             |          |        |   |       | 23 | 
|                  | Options and warrants exercised      |                  |             | 1,560,672 |        |   |       | 26 | 
|                  |                                     |                  |             |           |        |  
|December 31, 2004 |                                     |                  | 423,736,414 |           |        |   | 3,506 |   
|                  | Options and warrants exercised      |                  |             | 388,664   |        |   |       | 17 | 
|                  |                                     |                  |             |           |        |  
|December 31, 2005 |                                     |                  | 424,125,078 |           |        | $ | 3,523 |   
|                  |                                     |                  |             |           |        |  

Stock Options








|                  |                             |             |       |          |                 |          |         |             |  |             |             |   |  |  |       |  | 
|----------------- | --------------------------- | ----------- | ----- | -------- | --------------- | -------- | ------- | ----------- |  | ----------- | ----------- | - |  |  | ----- |  | 
|                  |                             |             |       |          |                 | Weighted |         |             | 
|                  |                             |             |       | Weighted |                 |          | Average |             |  |            
|                  |                             | Number of   |       |          | Average         |          |         | Contractual |  |             | Options     |  
|                  |                             | Options     |       |          | Exercise Prices |          |         | Life        |  |             | Exercisable |  
|                  |                             |             |       |          |                 |          |         |             |  |             |             |  
|                  |                             | (thousands) |       |          |                 |          | (years) |             |  | (thousands) |            
|December 31, 2002 |                             |             | 7,920 |          |                 | $        | 13.91   |             |  |             | 3           |   |  |  | 4,822 | 
|                  | Granted                     |             |       | 591      |                 |          | $       | 19.17       |  |             |             | 5 |  |  |       |  | 
|                  | Exercised for common shares |             |       | (3,789   | )               |          | $       | 13.45       |  |             |             | 2 |  |  |       |  | 
|                  | Forfeited                   |             |       | (125     | )               |          | $       | 14.71       |  |             |             | 2 |  |  |       |  | 
|                  |                             |             |       |          |                 |          |         |             |  |             |             |  
|December 31, 2003 |                             |             | 4,597 |          |                 | $        | 13.88   |             |  |             | 2           |   |  |  | 3,564 | 
|                  | Granted                     |             |       | 8,200    |                 |          | $       | 25.10       |  |             |             | 4 |  |  |       |  | 
|                  | Exercised for common shares |             |       | (1,350   | )               |          | $       | 13.11       |  |             |             | 1 |  |  |       |  | 
|                  | Surrendered for cash        |             |       | (1,269   | )               |          | $       | 13.32       |  |             |             | 1 |  |  |       |  | 
|                  | Forfeited                   |             |       | (214     | )               |          | $       | 22.73       |  |             |             | 4 |  |  |       |  | 
|                  |                             |             |       |          |                 |          |         |             |  |             |             |  
|December 31, 2004 |                             |             | 9,964 |          |                 | $        | 22.61   |             |  |             | 4           |   |  |  | 1,417 | 
|                  | Granted                     |             |       | 670      |                 |          | $       | 48.14       |  |             |             | 5 |  |  |       |  | 
|                  | Exercised for common shares |             |       | (359     | )               |          | $       | 15.84       |  |             |             | 1 |  |  |       |  | 
|                  | Surrendered for cash        |             |       | (2,443   | )               |          | $       | 19.05       |  |             |             | 2 |  |  |       |  | 
|                  | Forfeited                   |             |       | (547     | )               |          | $       | 24.10       |  |             |             | 3 |  |  |       |  | 
|                  |                             |             |       |          |                 |          |         |             |  |             |             |  
|December 31, 2005 |                             |             | 7,285 |          |                 | $        | 25.81   |             |  |             | 3           |   |  |  | 1,533 | 
|                  |                             |             |       |          |                 |          |         |             |  |             |             |  

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|                        |  |                         |       |          |                     |   |          |             |  |             |           |          |  |          |       |  |  |   |       | 
|----------------------- |  | ----------------------- | ----- | -------- | ------------------- | - | -------- | ----------- |  | ----------- | --------- | -------- |  | -------- | ----- |  |  | - | ----- | 
|                        |  | As at December 31, 2005 |      
|                        |  |                         |      
|                        |  | Outstanding Options     |       |          | Options Exercisable |  
|                        |  |                         |       |          |                     |  
|                        |  |                         |       | Weighted |                     |   | Weighted |             |  |             |           | Weighted | 
|                        |  |                         |       | Average  |                     |   | Average  |             |  |             |           | Average  | 
|                        |  | Number of               |       |          | Exercise            |   |          | Contractual |  |             | Number of |          |  | Exercise |      
|Range of Exercise Price |  | Options                 |       |          | Prices              |   |          | Life        |  |             | Options   |          |  | Prices   |      
|                        |  |                         |       |          |                     |   |          |             |  |             |           |          |  |          |      
|                        |  | (thousands)             |       |          |                     |   | (years)  |             |  | (thousands) |           |          | 
|$13.67  $14.99         |  |                         | 187   |          |                     | $ | 14.32    |             |  |             | 2         |          |  |          | 144   |  |  | $ | 14.17 | 
|$15.00  $22.99         |  |                         | 234   |          |                     | $ | 19.44    |             |  |             | 3         |          |  |          | 116   |  |  | $ | 19.98 | 
|$23.00  $23.99         |  |                         | 5,977 |          |                     | $ | 23.83    |             |  |             | 3         |          |  |          | 1,252 |  |  | $ | 23.83 | 
|$24.00  $39.99         |  |                         | 392   |          |                     | $ | 32.11    |             |  |             | 4         |          |  |          | 21    |  |  | $ | 30.60 | 
|$40.00  $55.14         |  |                         | 495   |          |                     | $ | 52.12    |             |  |             | 5         |          |  |          |      |  |  | $ |      | 
|                        |  |                         |       |          |                     |   |          |             |  |             |           |          |  |          |      
|                        |  |                         | 7,285 |          |                     | $ | 25.81    |             |  |             | 3         |          |  |          | 1,533 |  |  | $ | 22.72 | 
|                        |  |                         |       |          |                     |   |          |             |  |             |           |          |  |          |      

Warrants




Earnings per Common Share


|                                                     |                    |      |       |       |      |   |       |       |  |   |       |       | 
|---------------------------------------------------- | ------------------ | ---- | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                     |                    | 2005 |       |       | 2004 |   |       | 2003  | 
|                                                     |                    |      |       |       |      |   |       |       | 
|Net earnings                                         |                    | $    | 2,003 |       |      | $ | 1,006 |       |  | $ | 1,370 |      
|                                                     |                    |      |       |       |      |   |       |       | 
|Weighted average number of common shares outstanding |                    |      |       |       |      |   |       |       |  |   |       |      
|                                                     | Basic (millions)   |      |       | 424.0 |      |   |       | 423.4 |  |   |       | 419.5 | 
|Effect of dilutive stock options and warrants        |                    |      |      |       |      |   | 0.9   |       |  |   | 2.0   |      
|                                                     |                    |      |       |       |      |   |       |       | 
|Weighted average number of common shares outstanding |                    |      |       |       |      |   |       |       |  |   |       |      
|                                                     | Diluted (millions) |      |       | 424.0 |      |   |       | 424.3 |  |   |       | 421.5 | 
|                                                     |                    |      |       |       |      |   |       |       | 
|Earnings per share                                   |                    |      |       |       |      |   |       |       |  |   |       |      
|                                                     | Basic              |      | $     | 4.72  |      |   | $     | 2.37  |  |   | $     | 3.26  | 
|                                                     | Diluted            |      | $     | 4.72  |      |   | $     | 2.37  |  |   | $     | 3.25  | 
|                                                     |                    |      |       |       |      |   |       |       | 

Stock-based Compensation




|                                                                    |             |      |    |       | 
|------------------------------------------------------------------- | ----------- | ---- | -- | ----- | 
|                                                                    |             | 2003 |   
|                                                                    |             |      |   
|Compensation cost  all options granted (1)                         |             | $    | 14 |      
|Net earnings available to common shareholders                       |             |      |    |      
|                                                                    | As reported |      | $  | 1,370 | 
|                                                                    | As restated |      | $  | 1,356 | 
|Weighted average number of common shares outstanding
    (millions) |             |      |    |      
|                                                                    | Basic       |      |    | 419.5 | 
|                                                                    | Diluted     |      |    | 421.5 | 
|Basic earnings per share                                            |             |      |    |      
|                                                                    | As reported |      | $  | 3.26  | 
|                                                                    | As restated |      | $  | 3.23  | 
|Diluted earnings per share                                          |             |      |    |      
|                                                                    | As reported |      | $  | 3.25  | 
|                                                                    | As restated |      | $  | 3.22  | 






|    |                           
|--- | --------------------------
|(1) | Includes options modified.

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|                                       |  |      |      |  |      |   |      | 
|-------------------------------------- |  | ---- | ---- |  | ---- | - | ---- | 
|                                       |  | 2004 |      |  | 2003 |  
|                                       |  |      |      |  |      |  
|Weighted average fair value per option |  | $    | 5.67 |  |      | $ | 4.00 | 
|Risk-free interest rate (percent)      |  |      | 3.1  |  |      |   | 3.9  | 
|Volatility (percent)                   |  |      | 21   |  |      |   | 23   | 
|Expected life (years)                  |  |      | 5    |  |      |   | 5    | 
|Expected annual dividend per share     |  | $    | 0.44 |  |      | $ | 0.36 | 



|                                       |  |   |      | 
|-------------------------------------- |  | - | ---- | 
|Weighted average fair value per option |  | $ | 7.14 | 
|Risk-free interest rate (percent)      |  |   | 2.8  | 
|Volatility (percent)                   |  |   | 20   | 
|Expected life (years)                  |  |   | 2.3  | 
|Expected annual dividend per share     |  | $ | 0.40 | 

Dividends




Contributed Surplus




|                                                 |  |      |     |  
|------------------------------------------------ |  | ---- | --- | -
|                                                 |  | 2004 |    
|                                                 |  |      |    
|December 31, 2003                                |  | $    |    |  
|Stock-based compensation  adoption              |  |      | 21  |  
|Stock-based compensation cost                    |  |      | 1   |  
|Stock options exercised                          |  |      | (6  | )
|Modification of stock option plan  June 1, 2004 |  |      | (16 | )
|                                                 |  |      |    
|December 31, 2004                                |  | $    |    |  
|                                                 |  |      |    

Note 16


Employee Future Benefits






|                                                                |  |      |     |  |      |  |     |      |  |  |     | 
|--------------------------------------------------------------- |  | ---- | --- |  | ---- |  | --- | ---- |  |  | --- | 
|                                                                |  | 2005 |     |  | 2004 |  |     | 2003 | 
|                                                                |  |      |     |  |      |  |     |      | 
|Discount rate (percent)                                         |  |      | 5.8 |  |      |  | 6.0 |      |  |  | 6.0 | 
|Long-term rate of increase in compensation levels
    (percent) |  |      | 5.0 |  |      |  | 5.0 |      |  |  | 5.0 | 
|Long-term rate of return on plan assets (percent)               |  |      | 7.5 |  |      |  | 8.0 |      |  |  | 8.0 | 







19



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##### Table of Contents



Defined Benefit Pension Plan




Benefit Obligation


|                                      |  |      |     |   |      |   |     |      |  |   |     |  
|------------------------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                                      |  | 2005 |     |   | 2004 |   |     | 2003 | 
|                                      |  |      |     |   |      |   |     |      | 
|Benefit obligation, beginning of year |  | $    | 124 |   |      | $ | 118 |      |  | $ | 108 |  
|Current service cost                  |  |      | 2   |   |      |   | 2   |      |  |   | 2   |  
|Interest cost                         |  |      | 7   |   |      |   | 7   |      |  |   | 7   |  
|Benefits paid                         |  |      | (6  | ) |      |   | (6  | )    |  |   | (6  | )
|Actuarial losses                      |  |      | 11  |   |      |   | 3   |      |  |   | 7   |  
|                                      |  |      |     |   |      |   |     |      | 
|Benefit obligation, end of year       |  | $    | 138 |   |      | $ | 124 |      |  | $ | 118 |  
|                                      |  |      |     |   |      |   |     |      | 

Fair Value of Plan Assets


|                                             |  |      |     |   |      |   |    |      |  |   |    |  
|-------------------------------------------- |  | ---- | --- | - | ---- | - | -- | ---- |  | - | -- | -
|                                             |  | 2005 |     |   | 2004 |   |    | 2003 | 
|                                             |  |      |     |   |      |   |    |      | 
|Fair value of plan assets, beginning of year |  | $    | 96  |   |      | $ | 85 |      |  | $ | 77 |  
|Contributions                                |  |      | 11  |   |      |   | 10 |      |  |   | 8  |  
|Benefits paid                                |  |      | (6  | ) |      |   | (6 | )    |  |   | (6 | )
|Expected return on plan assets               |  |      | 7   |   |      |   | 7  |      |  |   | 6  |  
|Gain on plan assets                          |  |      |    |   |      |   | 1  |      |  |   | 2  |  
|Foreign exchange losses                      |  |      |    |   |      |   | (1 | )    |  |   | (2 | )
|                                             |  |      |     |   |      |   |    |      | 
|Fair value of plan assets, end of year       |  | $    | 108 |   |      | $ | 96 |      |  | $ | 85 |  
|                                             |  |      |     |   |      |   |    |      | 

Funded Status of Plan


|                                |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                |  | 2005 |      |   | 2004 |   |      | 2003 | 
|                                |  |      |      |   |      |   |      |      | 
|Fair value of plan assets       |  | $    | 108  |   |      | $ | 96   |      |  | $ | 85   |  
|Benefit obligation              |  |      | (138 | ) |      |   | (124 | )    |  |   | (118 | )
|                                |  |      |      |   |      |   |      |      | 
|Excess obligation               |  |      | (30  | ) |      |   | (28  | )    |  |   | (33  | )
|Unrecognized past service costs |  |      | 1    |   |      |   | 1    |      |  |   | 1    |  
|Unrecognized losses             |  |      | 40   |   |      |   | 32   |      |  |   | 32   |  
|                                |  |      |      |   |      |   |      |      | 
|Accrued benefit asset           |  | $    | 11   |   |      | $ | 5    |      |  | $ |     |  
|                                |  |      |      |   |      |   |      |      | 







|                                   |  |      |     |   |      |  |     |      |  |  |     |  
|---------------------------------- |  | ---- | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                   |  | 2005 |     |   | 2004 |  |     | 2003 | 
|                                   |  |      |     |   |      |  |     |      | 
|U.S. common equities               |  |      |    | % |      |  | 15  | %    |  |  | 15  | %
|Canadian common equities           |  |      | 29  |   |      |  | 25  |      |  |  | 28  |  
|International equity mutual funds  |  |      | 28  |   |      |  | 11  |      |  |  | 10  |  
|Canadian equity mutual funds       |  |      |    |   |      |  |    |      |  |  | 2   |  
|Canadian government bonds          |  |      | 18  |   |      |  | 25  |      |  |  | 29  |  
|Canadian corporate bonds           |  |      | 3   |   |      |  | 16  |      |  |  | 12  |  
|Canadian fixed income mutual funds |  |      | 20  |   |      |  |    |      |  |  |    |  
|Cash and receivables               |  |      | 2   |   |      |  | 8   |      |  |  | 4   |  
|                                   |  |      |     |   |      |  |     |      | 
|Total                              |  |      | 100 | % |      |  | 100 | %    |  |  | 100 | %
|                                   |  |      |     |   |      |  |     |      | 







20



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##### Table of Contents



Post-retirement Health and Dental Care Plan




Benefit Obligation


|                                      |  |      |    |  |      |   |    |      |  |   |    |  
|------------------------------------- |  | ---- | -- |  | ---- | - | -- | ---- |  | - | -- | -
|                                      |  | 2005 |    |  | 2004 |   |    | 2003 | 
|                                      |  |      |    |  |      |   |    |      | 
|Benefit obligation, beginning of year |  | $    | 25 |  |      | $ | 23 |      |  | $ | 21 |  
|Current service cost                  |  |      | 2  |  |      |   | 2  |      |  |   | 2  |  
|Interest cost                         |  |      | 1  |  |      |   | 1  |      |  |   | 1  |  
|Benefits paid                         |  |      |   |  |      |   | (1 | )    |  |   | (1 | )
|Actuarial losses                      |  |      | 5  |  |      |   |   |      |  |   |   |  
|                                      |  |      |    |  |      |   |    |      | 
|Benefit obligation, end of year       |  | $    | 33 |  |      | $ | 25 |      |  | $ | 23 |  
|                                      |  |      |    |  |      |   |    |      | 

Funded Status of Plan


|                          |  |      |     |   |      |   |     |      |  |   |     |  
|------------------------- |  | ---- | --- | - | ---- | - | --- | ---- |  | - | --- | -
|                          |  | 2005 |     |   | 2004 |   |     | 2003 | 
|                          |  |      |     |   |      |   |     |      | 
|Benefit obligation        |  | $    | (33 | ) |      | $ | (25 | )    |  | $ | (23 | )
|Unrecognized losses       |  |      | 6   |   |      |   | 2   |      |  |   | 3   |  
|                          |  |      |     |   |      |   |     |      | 
|Accrued benefit liability |  | $    | (27 | ) |      | $ | (23 | )    |  | $ | (20 | )
|                          |  |      |     |   |      |   |     |      | 



|                                                     |  |          |   |  |          |   |    |  
|---------------------------------------------------- |  | -------- | - |  | -------- | - | -- | -
|                                                     |  | 1%       |   |  | 1%       |  
|                                                     |  | Increase |   |  | Decrease |  
|                                                     |  |          |   |  |          |  
|Effect on total service and interest cost components |  | $        | 1 |  |          | $ |   |  
|Effect on post-retirement benefit obligation         |  | $        | 6 |  |          | $ | (5 | )

Pension Expense and Post-retirement Health and Dental Care
Expense




Pension Expense


|                                  |                                      |      |    |    |      |   |    |      |   |   |    |    |  
|--------------------------------- | ------------------------------------ | ---- | -- | -- | ---- | - | -- | ---- | - | - | -- | -- | -
|                                  |                                      | 2005 |    |    | 2004 |   |    | 2003 |  
|                                  |                                      |      |    |    |      |   |    |      |  
|Defined benefit pension plan      |                                      |      |    |    |      |   |    |      |   |   |    |   
|                                  | Employer current service cost        |      | $  | 2  |      |   | $  | 2    |   |   | $  | 2  |  
|                                  | Interest cost                        |      |    | 7  |      |   |    | 7    |   |   |    | 7  |  
|                                  | Expected return on plan assets       |      |    | (7 | )    |   |    | (7   | ) |   |    | (6 | )
|                                  | Amortization of net actuarial losses |      |    | 3  |      |   |    | 2    |   |   |    | 2  |  
|                                  |                                      |      |    |    |      |   |    |      |  
|                                  |                                      |      | 5  |    |      |   | 4  |      |   |   | 5  |   
|Defined contribution pension plan |                                      |      | 14 |    |      |   | 12 |      |   |   | 11 |   
|                                  |                                      |      |    |    |      |   |    |      |  
|Total expense                     |                                      | $    | 19 |    |      | $ | 16 |      |   | $ | 16 |   
|                                  |                                      |      |    |    |      |   |    |      |  

Post-retirement Health and Dental Care Expense


|                              |  |      |   |  |      |   |   |      |  |   |   | 
|----------------------------- |  | ---- | - |  | ---- | - | - | ---- |  | - | - | 
|                              |  | 2005 |   |  | 2004 |   |   | 2003 | 
|                              |  |      |   |  |      |   |   |      | 
|Employer current service cost |  | $    | 2 |  |      | $ | 2 |      |  | $ | 2 | 
|Interest cost                 |  |      | 1 |  |      |   | 1 |      |  |   | 1 | 
|                              |  |      |   |  |      |   |   |      | 
|Total expense                 |  | $    | 3 |  |      | $ | 3 |      |  | $ | 3 | 
|                              |  |      |   |  |      |   |   |      | 

Future Benefit Payments




|            |  |                 |    |  |                        |   |   | 
|----------- |  | --------------- | -- |  | ---------------------- | - | - | 
|            |  | Defined Benefit |    |  | Post-retirement Health |  
|            |  | Pension Plan    |    |  | and Dental Care Plan   |  
|            |  |                 |    |  |                        |  
|2006        |  | $               | 7  |  |                        | $ | 1 | 
|2007        |  |                 | 7  |  |                        |   | 1 | 
|2008        |  |                 | 8  |  |                        |   | 1 | 
|2009        |  |                 | 8  |  |                        |   | 1 | 
|2010        |  |                 | 8  |  |                        |   | 1 | 
|2011 - 2015 |  |                 | 46 |  |                        |   | 7 | 

21



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##### Table of Contents



Note 17


Related Party Transactions




Note 18


Financial Instruments and Risk Management


Carrying Values and Estimated Fair Values of Financial Assets
and Liabilities






|               |  |          |       |  |       |   |       |          |  |   |       |  |  |          |       |  |       |   |       |  |  |   |       | 
|-------------- |  | -------- | ----- |  | ----- | - | ----- | -------- |  | - | ----- |  |  | -------- | ----- |  | ----- | - | ----- |  |  | - | ----- | 
|               |  | 2005     |       |  | 2004  |   |       | 2003     | 
|               |  |          |       |  |       |   |       |          | 
|               |  | Carrying |       |  | Fair  |   |       | Carrying |  |   | Fair  |  |  | Carrying |       |  | Fair  |  
|               |  | Value    |       |  | Value |   |       | Value    |  |   | Value |  |  | Value    |       |  | Value |  
|               |  |          |       |  |       |   |       |          |  |   |       |  |  |          |       |  |       |  
|Long-term debt |  | $        | 1,886 |  |       | $ | 1,995 |          |  | $ | 2,103 |  |  | $        | 2,296 |  |       | $ | 1,989 |  |  | $ | 2,209 | 

Unrecognized Gains (Losses) on Derivative Instruments


|                                 |                            |      |   |     |      |  |   |      |   |  |   |      |  
|-------------------------------- | -------------------------- | ---- | - | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                                 |                            | 2005 |   |     | 2004 |  |   | 2003 |  
|                                 |                            |      |   |     |      |  |   |      |  
|Commodity price risk management  |                            |      |   |     |      |  |   |      |   |  |   |     
|                                 | Natural gas                |      | $ |    |      |  | $ | (9   | ) |  | $ | (8   | )
|                                 | Crude oil                  |      |   |    |      |  |   |     |   |  |   | (109 | )
|                                 | Power consumption          |      |   |    |      |  |   | (1   | ) |  |   | 2    |  
|Interest rate risk management    |                            |      |   |     |      |  |   |      |   |  |   |     
|                                 | Interest rate swaps        |      |   | 7   |      |  |   | 52   |   |  |   | 31   |  
|Foreign currency risk management |                            |      |   |     |      |  |   |      |   |  |   |     
|                                 | Foreign exchange contracts |      |   | (32 | )    |  |   | (30  | ) |  |   | (19  | )
|                                 | Foreign exchange forwards  |      |   |    |      |  |   |     |   |  |   | 15   |  

Commodity Price Risk Management




| |                           
| | --------------------------
| | Natural Gas
    Production





| |                         
| | ------------------------
| | Crude Oil
    Production





| |                      
| | ---------------------
| | Power
    Consumption





| |                          
| | -------------------------
| | Natural Gas
    Contracts



|                            |  |         |         |              |             |   |     |  
|--------------------------- |  | ------- | ------- | ------------ | ----------- | - | --- | -
|                            |  |         |         | Unrecognized |            
|                            |  | Volumes |         |              | Gain (Loss) |  
|                            |  |         |         |              |             |  
|                            |  | (mmcf)  |         |              |            
|Physical purchase contracts |  |         | 35,261  |              |             | $ | 29  |  
|Physical sale contracts     |  |         | (35,261 | )            |             | $ | (28 | )

22



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##### Table of Contents



Interest Rate Risk Management




|                        |  |        |     |  |               |           |               |           |  |  |                | 
|----------------------- |  | ------ | --- |  | ------------- | --------- | ------------- | --------- |  |  | -------------- | 
|Debt                    |  | Amount |     |  | Swap Maturity |           |               | Swap Rate | 
|                        |  |        |     |  |               |           |               |           | 
|                        |  |        |     |  |               | (percent) |              
|6.95% medium-term notes |  | $      | 200 |  |               |           | July 14, 2009 |           |  |  | CDOR + 175 bps | 





Foreign Currency Risk Management






|             |  |             |     |          |            |   |     |               |  |  |                   |  |  |  |      | 
|------------ |  | ----------- | --- | -------- | ---------- | - | --- | ------------- |  |  | ----------------- |  |  |  | ---- | 
|             |  |             |     | Canadian |            |   |     |               | 
|Debt         |  | Swap Amount |     |          | Equivalent |   |     | Swap Maturity |  |  | Interest Rate     | 
|             |  |             |     |          |            |   |     |               |  |  |                   | 
|             |  |             |     |          |            |   |     | (percent)     | 
|7.125% notes |  | U.S. $      | 150 |          |            | $ | 218 |               |  |  | November 15, 2006 |  |  |  | 8.74 | 
|6.25% notes  |  | U.S. $      | 150 |          |            | $ | 212 |               |  |  | June 15, 2012     |  |  |  | 7.41 | 
|6.25% notes  |  | U.S. $      | 75  |          |            | $ | 90  |               |  |  | June 15, 2012     |  |  |  | 5.65 | 
|6.25% notes  |  | U.S. $      | 50  |          |            | $ | 59  |               |  |  | June 15, 2012     |  |  |  | 5.67 | 
|6.25% notes  |  | U.S. $      | 75  |          |            | $ | 88  |               |  |  | June 15, 2012     |  |  |  | 5.61 | 





Credit Risk








23



---



##### Table of Contents



Note 19


Reconciliation to Accounting Principles Generally Accepted
in the United States




Consolidated Statements of Earnings


|                                                                                                  |                      |         |       |     |       |   |       |      |       |   |       |     |       | 
|------------------------------------------------------------------------------------------------- | -------------------- | ------- | ----- | --- | ----- | - | ----- | ---- | ----- | - | ----- | --- | ----- | 
|                                                                                                  |                      | 2005    |       |     | 2004  |   |       | 2003 |      
|                                                                                                  |                      |         |       |     |       |   |       |      |      
|Net earnings under Canadian GAAP (1)                                                              |                      | $       | 2,003 |     |       | $ | 1,006 |      |       | $ | 1,370 |    
|Adjustments:                                                                                      |                      |         |       |     |       |   |       |      |       |   |       |    
|Full cost accounting (a)                                                                          |                      |         | 66    |     |       |   | 37    |      |       |   | 80    |    
|                                                                                                  | Related income taxes |         |       | (23 | )     |   |       | (13  | )     |   |       | (29 | )    
|Derivatives and hedging (b)                                                                       |                      |         |      |     |       |   |      |      |       |   | (1    | )  
|                                                                                                  | Related income taxes |         |       |    |       |   |       |     |       |   |       | 1   |      
|Energy trading contracts (c)                                                                      |                      |         |      |     |       |   | (1    | )    |       |   | (15   | )  
|                                                                                                  | Related income taxes |         |       |    |       |   |       |     |       |   |       | 6   |      
|Stock-based compensation (e)                                                                      |                      |         |      |     |       |   | 2     |      |       |   | (46   | )  
|                                                                                                  |                      |         |       |     |       |   |       |      |      
|Earnings before cumulative effect of change in accounting
    principle under U.S. GAAP           |                      |         | 2,046 |     |       |   | 1,031 |      |       |   | 1,366 |    
|Cumulative effect of change in accounting principle, net of
    tax (d)                           |                      |         |      |     |       |   |      |      |       |   | 9     |    
|                                                                                                  |                      |         |       |     |       |   |       |      |      
|Net earnings under U.S. GAAP                                                                      |                      | $       | 2,046 |     |       | $ | 1,031 |      |       | $ | 1,375 |    
|                                                                                                  |                      |         |       |     |       |   |       |      |      
|Weighted average number of common shares outstanding under
    U.S. GAAP (millions)               |                      |         |       |     |       |   |       |      |       |   |       |    
|                                                                                                  |                      | Basic   |       |     | 424.0 |   |       |      | 423.4 |   |       |     | 419.5 | 
|                                                                                                  |                      | Diluted |       |     | 424.0 |   |       |      | 424.3 |   |       |     | 421.5 | 
|Earnings per share before cumulative effect of change in
    accounting principle under U.S. GAAP |                      |         |       |     |       |   |       |      |       |   |       |    
|                                                                                                  |                      | Basic   |       | $   | 4.83  |   |       | $    | 2.44  |   |       | $   | 3.26  | 
|                                                                                                  |                      | Diluted |       | $   | 4.83  |   |       | $    | 2.43  |   |       | $   | 3.24  | 
|Earnings per share under U.S. GAAP                                                                |                      |         |       |     |       |   |       |      |       |   |       |    
|                                                                                                  |                      | Basic   |       | $   | 4.83  |   |       | $    | 2.44  |   |       | $   | 3.28  | 
|                                                                                                  |                      | Diluted |       | $   | 4.83  |   |       | $    | 2.43  |   |       | $   | 3.26  | 






|    |                                                    
|--- | ---------------------------------------------------
|(1) | 2004 and 2003 amounts as restated (notes 3 and 11).

Condensed Consolidated Balance Sheets


|                                       |                                           |          |        |   |      |   |        |          |   |   |        |   |  |          |        |     |      |   |        |   |  |   |        |     |  
|-------------------------------------- | ----------------------------------------- | -------- | ------ | - | ---- | - | ------ | -------- | - | - | ------ | - |  | -------- | ------ | --- | ---- | - | ------ | - |  | - | ------ | --- | -
|                                       |                                           | 2005     |        |   | 2004 |   |        | 2003     |  
|                                       |                                           |          |        |   |      |   |        |          |  
|                                       |                                           | Canadian |        |   | U.S. |   |        | Canadian |   |   | U.S.   |   |  | Canadian |        |     | U.S. |  
|                                       |                                           | GAAP     |        |   | GAAP |   |        | GAAP(1)  |   |   | GAAP   |   |  | GAAP(1)  |        |     | GAAP |  
|                                       |                                           |          |        |   |      |   |        |          |   |   |        |   |  |          |        |     |      |  
|Current assets (b)(c)                  |                                           | $        | 1,616  |   |      | $ | 1,672  |          |   | $ | 779    |   |  | $        | 837    |     |      | $ | 852    |   |  | $ | 911    |    
|Property, plant and equipment, net (a) |                                           |          | 13,959 |   |      |   | 13,465 |          |   |   | 12,193 |   |  |          | 11,633 |     |      |   | 10,862 |   |  |   | 10,264 |    
|Other assets (i)                       |                                           |          | 222    |   |      |   | 223    |          |   |   | 268    |   |  |          | 269    |     |      |   | 235    |   |  |   | 236    |    
|                                       |                                           |          |        |   |      |   |        |          |   |   |        |   |  |          |        |     |      |  
|                                       |                                           | $        | 15,797 |   |      | $ | 15,360 |          |   | $ | 13,240 |   |  | $        | 12,739 |     |      | $ | 11,949 |   |  | $ | 11,411 |    
|                                       |                                           |          |        |   |      |   |        |          |   |   |        |   |  |          |        |     |      |  
|Current liabilities (b)(c)(i)          |                                           | $        | 2,665  |   |      | $ | 2,766  |          |   | $ | 1,603  |   |  | $        | 1,656  |     |      | $ | 1,466  |   |  | $ | 1,628  |    
|Long-term debt (b)                     |                                           |          | 1,612  |   |      |   | 1,670  |          |   |   | 2,047  |   |  |          | 2,124  |     |      |   | 1,730  |   |  |   | 1,794  |    
|Other long-term liabilities (b)        |                                           |          | 730    |   |      |   | 688    |          |   |   | 632    |   |  |          | 614    |     |      |   | 519    |   |  |   | 493    |    
|Future income taxes (a)(b)(c)(d)(i)    |                                           |          | 3,270  |   |      |   | 3,089  |          |   |   | 2,758  |   |  |          | 2,555  |     |      |   | 2,621  |   |  |   | 2,372  |    
|Share capital (e)(f)(g)                |                                           |          | 3,523  |   |      |   | 3,757  |          |   |   | 3,506  |   |  |          | 3,740  |     |      |   | 3,457  |   |  |   | 3,737  |    
|Retained earnings                      |                                           |          | 3,997  |   |      |   | 3,431  |          |   |   | 2,694  |   |  |          | 2,085  |     |      |   | 2,156  |   |  |   | 1,478  |    
|Accumulated other comprehensive income |                                           |          |        |   |      |   |        |          |   |   |        |   |  |          |        |     |      |   |        |   |  |   |        |    
|                                       | Cash flow hedges, net of tax (b)          |          |        |  |      |   |        | (21      | ) |   |        |  |  |          |        | (20 | )    |   |        |  |  |   |        | (76 | )
|                                       | Minimum pension liability, net of tax (i) |          |        |  |      |   |        | (20      | ) |   |        |  |  |          |        | (15 | )    |   |        |  |  |   |        | (15 | )
|                                       |                                           |          |        |   |      |   |        |          |   |   |        |   |  |          |        |     |      |  
|                                       |                                           | $        | 15,797 |   |      | $ | 15,360 |          |   | $ | 13,240 |   |  | $        | 12,739 |     |      | $ | 11,949 |   |  | $ | 11,411 |    
|                                       |                                           |          |        |   |      |   |        |          |   |   |        |   |  |          |        |     |      |  






|    |                                                    
|--- | ---------------------------------------------------
|(1) | 2004 and 2003 amounts as restated (notes 3 and 11).

24



---



##### Table of Contents



Condensed Consolidated Statements of Retained Earnings and
Accumulated Other Comprehensive Income


|                                                          |  |          |       |   |      |   |       |          |  |   |       |   |  |          |       |   |      |   |       |   |  |   |       |  
|--------------------------------------------------------- |  | -------- | ----- | - | ---- | - | ----- | -------- |  | - | ----- | - |  | -------- | ----- | - | ---- | - | ----- | - |  | - | ----- | -
|                                                          |  | 2005     |       |   | 2004 |   |       | 2003     | 
|                                                          |  |          |       |   |      |   |       |          | 
|                                                          |  | Canadian |       |   | U.S. |   |       | Canadian |  |   | U.S.  |   |  | Canadian |       |   | U.S. |  
|                                                          |  | GAAP     |       |   | GAAP |   |       | GAAP(1)  |  |   | GAAP  |   |  | GAAP(1)  |       |   | GAAP |  
|                                                          |  |          |       |   |      |   |       |          |  |   |       |   |  |          |       |   |      |  
|Retained earnings, beginning of year                      |  | $        | 2,694 |   |      | $ | 2,085 |          |  | $ | 2,156 |   |  | $        | 1,478 |   |      | $ | 1,366 |   |  | $ | 683   |  
|Net earnings                                              |  |          | 2,003 |   |      |   | 2,046 |          |  |   | 1,006 |   |  |          | 1,031 |   |      |   | 1,370 |   |  |   | 1,375 |  
|Dividends on common shares                                |  |          | (700  | ) |      |   | (700  | )        |  |   | (424  | ) |  |          | (424  | ) |      |   | (580  | ) |  |   | (580  | )
|Stock-based compensation  retroactive
    adoption (e)   |  |          |      |   |      |   |      |          |  |   | (44   | ) |  |          |      |   |      |   |      |   |  |   |      |  
|                                                          |  |          |       |   |      |   |       |          |  |   |       |   |  |          |       |   |      |  
|Retained earnings, end of year                            |  | $        | 3,997 |   |      | $ | 3,431 |          |  | $ | 2,694 |   |  | $        | 2,085 |   |      | $ | 2,156 |   |  | $ | 1,478 |  
|                                                          |  |          |       |   |      |   |       |          |  |   |       |   |  |          |       |   |      |  
|Accumulated other comprehensive income, beginning of year |  | $        |      |   |      | $ | (35   | )        |  | $ |      |   |  | $        | (91   | ) |      | $ |      |   |  | $ | (17   | )
|Cash flow hedges, net of tax (b)                          |  |          |      |   |      |   | (1    | )        |  |   |      |   |  |          | 56    |   |      |   |      |   |  |   | (69   | )
|Minimum pension liability, net of tax (i)                 |  |          |      |   |      |   | (5    | )        |  |   |      |   |  |          |      |   |      |   |      |   |  |   | (5    | )
|                                                          |  |          |       |   |      |   |       |          |  |   |       |   |  |          |       |   |      |  
|Accumulated other comprehensive income, end of year       |  | $        |      |   |      | $ | (41   | )        |  | $ |      |   |  | $        | (35   | ) |      | $ |      |   |  | $ | (91   | )
|                                                          |  |          |       |   |      |   |       |          |  |   |       |   |  |          |       |   |      |  






|    |                                                    
|--- | ---------------------------------------------------
|(1) | 2004 and 2003 amounts as restated (notes 3 and 11).

Condensed Consolidated Statements of Earnings and
Comprehensive Income


|                                                                        |  |          |        |  |      |   |       |          |  |   |       |  |  |          |       |   |      |   |       |  |  |   |       | 
|----------------------------------------------------------------------- |  | -------- | ------ |  | ---- | - | ----- | -------- |  | - | ----- |  |  | -------- | ----- | - | ---- | - | ----- |  |  | - | ----- | 
|                                                                        |  | 2005     |        |  | 2004 |   |       | 2003     | 
|                                                                        |  |          |        |  |      |   |       |          | 
|                                                                        |  | Canadian |        |  | U.S. |   |       | Canadian |  |   | U.S.  |  |  | Canadian |       |   | U.S. |  
|                                                                        |  | GAAP     |        |  | GAAP |   |       | GAAP(1)  |  |   | GAAP  |  |  | GAAP(1)  |       |   | GAAP |  
|                                                                        |  |          |        |  |      |   |       |          |  |   |       |  |  |          |       |   |      |  
|Sales and operating revenues (b)(c)(h)                                  |  | $        | 10,245 |  |      | $ | 8,445 |          |  | $ | 8,440 |  |  | $        | 7,038 |   |      | $ | 7,658 |  |  | $ | 6,823 | 
|Costs and expenses (b)(c)(e)(h)                                         |  |          | 6,112  |  |      |   | 4,312 |          |  |   | 5,769 |  |  |          | 4,366 |   |      |   | 4,665 |  |  |   | 3,892 | 
|Accretion expense                                                       |  |          | 33     |  |      |   | 33    |          |  |   | 27    |  |  |          | 27    |   |      |   | 22    |  |  |   | 22    | 
|Depletion, depreciation and amortization (a)                            |  |          | 1,256  |  |      |   | 1,190 |          |  |   | 1,179 |  |  |          | 1,142 |   |      |   | 1,021 |  |  |   | 941   | 
|Interest  net                                                          |  |          | 32     |  |      |   | 32    |          |  |   | 60    |  |  |          | 60    |   |      |   | 102   |  |  |   | 102   | 
|                                                                        |  |          |        |  |      |   |       |          |  |   |       |  |  |          |       |   |      |  
|Earnings before income taxes                                            |  |          | 2,812  |  |      |   | 2,878 |          |  |   | 1,405 |  |  |          | 1,443 |   |      |   | 1,848 |  |  |   | 1,866 | 
|Income taxes (a)(b)(c)                                                  |  |          | 809    |  |      |   | 832   |          |  |   | 399   |  |  |          | 412   |   |      |   | 478   |  |  |   | 500   | 
|                                                                        |  |          |        |  |      |   |       |          |  |   |       |  |  |          |       |   |      |  
|Earnings before cumulative effect of change in accounting
    principle |  |          | 2,003  |  |      |   | 2,046 |          |  |   | 1,006 |  |  |          | 1,031 |   |      |   | 1,370 |  |  |   | 1,366 | 
|Cumulative effect of change in accounting principle, net of
    tax (d) |  |          |       |  |      |   |      |          |  |   |      |  |  |          |      |   |      |   |      |  |  |   | 9     | 
|                                                                        |  |          |        |  |      |   |       |          |  |   |       |  |  |          |       |   |      |  
|Net earnings                                                            |  |          | 2,003  |  |      |   | 2,046 |          |  |   | 1,006 |  |  |          | 1,031 |   |      |   | 1,370 |  |  |   | 1,375 | 
|Other comprehensive income (b)(i)                                       |  |          |       |  |      |   | 6     |          |  |   |      |  |  |          | (56   | ) |      |   |      |  |  |   | 74    | 
|                                                                        |  |          |        |  |      |   |       |          |  |   |       |  |  |          |       |   |      |  
|Comprehensive income                                                    |  | $        | 2,003  |  |      | $ | 2,052 |          |  | $ | 1,006 |  |  | $        | 975   |   |      | $ | 1,370 |  |  | $ | 1,449 | 
|                                                                        |  |          |        |  |      |   |       |          |  |   |       |  |  |          |       |   |      |  






|    |                                                    
|--- | ---------------------------------------------------
|(1) | 2004 and 2003 amounts as restated (notes 3 and 11).





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Under Canadian GAAP the ceiling test is performed by comparing
    the carrying value of the cost centre based on the sum of the
    undiscounted cash flows expected from the cost centres use
    and eventual disposition. If the carrying value is unrecoverable
    the cost centre is written down to its fair value using the
    expected present value approach of proved plus probable reserves
    using future prices. Under U.S. GAAP, companies using the
    full cost method of accounting for oil and gas producing
    activities perform a ceiling test on each cost centre using
    discounted estimated future net revenue from proved oil and gas
    reserves using a discount factor of 10 percent. Prices used
    in the U.S. GAAP ceiling tests performed for this
    reconciliation were those in effect at the applicable year-end.
    At December 31, 2001, the Company recognized a
    U.S. GAAP ceiling test write down of $334 million
    after tax. Depletion expense for U.S. GAAP is reduced by
    $62 million (2004  $76 million;
    2003  $80 million), net of tax of
    $21 million (2004  $27 million;
    2003  $30 million).



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under U.S. GAAP, prices used
    in the reserve determination were those in effect at the
    applicable year-end. For Canadian GAAP, forecast prices are used
    in the reserve determination. The different prices result in a
    lower reserve base for U.S. GAAP. Additional depletion of
    $39 million, net of taxes of $14 million was recorded
    under U.S. GAAP in December 2004. As of the first quarter
    of 2005 these reserves have become economical again and are
    included in the reserve base resulting in a reduction to
    depletion expense for U.S. GAAP of $4 million, net of
    tax of $2 million.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | The Company records all derivative instruments as assets and
    liabilities on the balance sheet based on their fair values as
    required under FAS 133, Accounting for Derivative
    Instruments and Hedging Activities. At December 31,
    2005, the Company recorded additional assets and liabilities for
    U.S. GAAP purposes of $7 million (2004 
    $52 million; 2003  $52 million) and
    $39 million (2004  $93 million;
    2003  $172 million), respectively, for the fair
    values of derivative financial instruments. The Company also
    recorded a gain of less than $1 million, net of tax
    (2004  loss of less than $1 million;
    2003  loss of $2 million), in revenue for
    U.S. GAAP purposes with respect to derivatives designated
    as fair value hedges relating to commodity price risk. In
    addition, the amount included in other comprehensive income was
    increased by $1 million net of tax (2004 
    decreased by $51 million; 2003  increased by
    $69 million), for changes in the fair values of the
    derivatives designated as hedges of cash flows relating to
    commodity price risk, foreign exchange risk and the transfer to
    income of amounts

25



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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | applicable to cash flows occurring
    in 2005. In 2004, the Company unwound its long-dated foreign
    exchange forwards. The unrealized gain of $5 million, net
    of tax was deferred in other comprehensive income and recognized
    in 2005 when the underlying transactions took place. In 2005 and
    2003 the Company unwound interest rate swaps that were fair
    value hedges of debt for proceeds of $37 million and
    $44 million, respectively. Under Canadian GAAP, the
    proceeds received have been recorded to current and long-term
    liabilities and are being deferred over the life of the debt.
    For U.S. GAAP purposes, the balance in the current and
    long-term liabilities has been reclassified to long-term debt
    consistent with fair value hedge treatment. In prior years, the
    gains net of tax (2003  $1 million), on foreign
    currency derivatives and natural gas basis swaps that did not
    qualify for hedge accounting under FAS 133 were included in
    income for U.S. GAAP purposes.                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(c) | Under U.S. GAAP, natural gas
    purchase and sale contracts related to energy trading activities
    are recorded at fair value in accordance with Emerging Issues
    Task Force 02-03, Issues Involved in Accounting for
    Derivative Contracts held for Trading Purposes and Contracts
    Involved in Energy Trading and Risk Management Activities.
    Under Canadian GAAP, the impact of energy trading contracts is
    recorded as they settle. Under U.S. GAAP, at
    December 31, 2005 the Company recorded additional assets
    and liabilities of $49 million (2004 
    $4 million; 2003  $7 million) and
    $48 million (2004  $3 million;
    2003  $5 million), respectively, and included
    the resulting unrealized gain, net of tax of less than
    $1 million (2004  loss of $1 million;
    2003  loss of $9 million), in earnings for the
    year. Under U.S. GAAP, gains and losses on energy trading
    contracts have been netted against sales and operating revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(d) | In 2003, the Company adopted
    FAS 143, Accounting for Asset Retirement
    Obligations, which requires the fair value of a liability
    for an asset retirement obligation to be recorded in the period
    in which it is incurred and a corresponding increase in the
    carrying amount of the related tangible long-lived asset. The
    standard applies to legal obligations associated with the
    retirement of long-lived assets that result from the
    acquisition, construction, development and normal use of the
    asset. The liability is accreted at the end of each period
    through charges to accretion expense. The change was effective
    January 1, 2003, and the related cumulative effect of
    change in accounting principle to net earnings to
    December 31, 2002 was an increase of $20 million, net
    of tax of $11 million or $0.02 per share (diluted).
    Effective January 1, 2004, under Canadian GAAP the Company
    adopted CICA section 3110, Asset Retirement
    Obligations, which is substantially the same as the
    recommendations in FAS 143. CICA section 3110 was
    adopted retroactively with restatement. The application of asset
    retirement obligations did not have a material impact on the
    Companys depletion, depreciation and amortization rate.
    There was no impact on the Companys cash flow as a result
    of adopting asset retirement obligations.
|   
|(e) | On September 3, 2003, the
    Company modified the exercise price of all outstanding options.
    Under U.S. GAAP these options are required to be accounted
    for using variable accounting where the in-the-money portion of
    the vested stock options outstanding is adjusted through the
    statement of earnings as compensation expense over the remaining
    vesting period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective January 1, 2004,
    under Canadian GAAP, the Company adopted fair value accounting
    for stock-based compensation retroactively without restatement,
    which is consistent with the recommendations in FAS 123,
    Accounting for Stock-based Compensation 
    Transition and Disclosure. As a result, the compensation
    expense of $46 million for the year ended December 31,
    2003 was reversed through earnings and a compensation expense of
    $44 million was recognized for the fair value of all stock
    options.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(f) | As a result of the reorganization of the capital structure which
    occurred in 2000, the deficit of Husky Oil Limited of
    $160 million was eliminated. Elimination of the deficit
    would not be permitted under U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(g) | Until 1997 the Company recorded interest waived on subordinated
    shareholders loans and dividends waived on Class C
    shares as a reduction of ownership charges. Under
    U.S. GAAP, waived interest and dividends in those years
    would be recorded as interest on subordinated shareholders
    loans and dividends on Class C shares and as capital
    contributions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(h) | Under U.S. GAAP, transportation costs are included in cost
    of sales. Effective January 1, 2004, for Canadian purposes,
    certain transportation costs that were previously netted against
    revenue are now being recorded as cost of sales on a prospective
    basis. Transportation costs for 2003 were $112 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(i) | The Company amortizes the portion of the unrecognized gains or
    losses that exceed 10 percent of the greater of the
    projected benefit obligation or the market-related value of
    pension plan assets. The market-related value of pension plan
    assets is the fair value of the assets or a calculated value
    that recognizes changes in fair value over not more than five
    years. Under U.S. GAAP, an additional minimum liability is
    recognized if the unfunded accumulated benefit obligation
    exceeds the unfunded pension cost already recognized. If an
    additional minimum liability is recognized, an amount equal to
    the unrecognized prior service cost is recognized as an
    intangible asset and any excess is reported in other
    comprehensive income. At December 31, 2005, the additional
    minimum liability was increased by $6 million
    (2004  decrease of $1 million; 2003 
    increase of $6 million) with a decrease to other
    comprehensive income of $5 million (2004 
    decrease of less than $1 million; 2003  decrease
    of $5 million), net of tax.

Additional U.S. GAAP Disclosures


Corporate Acquisitions




Accounting for Derivative Instruments and Hedging
Activities




26



---



##### Table of Contents







Stock Option Plan




|                             |  |             |       |  |           |   |       | 
|---------------------------- |  | ----------- | ----- |  | --------- | - | ----- | 
|                             |  | 2003        |      
|                             |  |             |      
|                             |  | As Reported |       |  | Pro Forma |  
|                             |  |             |       |  |           |  
|Net earnings under U.S. GAAP |  | $           | 1,375 |  |           | $ | 1,407 | 
|Earnings per share  Basic   |  | $           | 3.28  |  |           | $ | 3.35  | 
|
    Diluted                |  | $           | 3.26  |  |           | $ | 3.34  | 





Depletion, Depreciation and Amortization




|                                                 |  |      |      |  |      |   |      |      |  |   |      | 
|------------------------------------------------ |  | ---- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                                                 |  | 2005 |      |  | 2004 |   |      | 2003 | 
|                                                 |  |      |      |  |      |   |      |      | 
|Depletion, depreciation and amortization per boe |  | $    | 9.38 |  |      | $ | 8.76 |      |  | $ | 7.35 | 

Accounting for Inventory Costs




Accounting for Exchanges of Nonmonetary Assets




27



---



##### Table of Contents



Accounting Changes and Error Corrections




28



---



##### Table of Contents



Document C


Form 40-F




MANAGEMENTS DISCUSSION AND ANALYSIS


February 16, 2006








---



##### 










TABLE OF CONTENTS


|                                                          |                                                                   |      |    |    | 
|--------------------------------------------------------- | ----------------------------------------------------------------- | ---- | -- | -- | 
|                                                          |                                                                   | Page |   
|                                                          |                                                                   |      |   
|Introduction                                              |                                                                   |      | 2  |   
|1.   Vision                                               |                                                                   |      | 3  |   
|                                                          | Core Businesses                                                   |      |    | 3  | 
|                                                          | Operating and Financial Strategies                                |      |    | 3  | 
|                                                          | Capability to Deliver Results                                     |      |    | 4  | 
|                                                          | Key Performance Drivers and Measures                              |      |    | 5  | 
|2.   Financial and
    Operational Overview               |                                                                   |      | 7  |   
|                                                          | Overview                                                          |      |    | 7  | 
|                                                          | Selected Annual Information                                       |      |    | 8  | 
|                                                          | Selected Quarterly Information                                    |      |    | 8  | 
|                                                          | The Business Environment in 2005                                  |      |    | 9  | 
|                                                          | Sensitivities by Segment for 2005
    Results                     |      |    | 10 | 
|3.   Results of
    Operations                            |                                                                   |      | 11 |   
|                                                          | Upstream                                                          |      |    | 11 | 
|                                                          | Midstream                                                         |      |    | 19 | 
|                                                          | Refined Products                                                  |      |    | 22 | 
|                                                          | Corporate                                                         |      |    | 23 | 
|4.   Liquidity and Capital
    Resources                  |                                                                   |      | 25 |   
|                                                          | Summary of Cash Flow                                              |      |    | 25 | 
|                                                          | Financial Position                                                |      |    | 26 | 
|                                                          | Cash Requirements                                                 |      |    | 28 | 
|                                                          | Off-balance Sheet Arrangements                                    |      |    | 29 | 
|                                                          | Transactions with Related Parties and Major
    Customers         |      |    | 29 | 
|                                                          | Financial Risk and Risk Management                                |      |    | 30 | 
|                                                          | Outstanding Share Data                                            |      |    | 31 | 
|5.   2006 Outlook                                         |                                                                   |      | 31 |   
|                                                          | General Economy                                                   |      |    | 31 | 
|                                                          | Upstream                                                          |      |    | 31 | 
|                                                          | Midstream                                                         |      |    | 32 | 
|                                                          | Refined Products                                                  |      |    | 32 | 
|6.   Application of Critical
    Accounting Estimates     |                                                                   |      | 32 |   
|                                                          | Full Cost Accounting for Oil and Gas
    Activities               |      |    | 33 | 
|                                                          | Depletion Expense                                                 |      |    | 33 | 
|                                                          | Withheld Costs                                                    |      |    | 33 | 
|                                                          | Full Cost Accounting                                              |      |    | 33 | 
|                                                          | Impairment of Long-lived Assets                                   |      |    | 33 | 
|                                                          | Fair Value of Derivative Instruments                              |      |    | 33 | 
|                                                          | Asset Retirement Obligations                                      |      |    | 34 | 
|                                                          | Legal, Environmental Remediation and Other
    Contingent Matters |      |    | 34 | 
|                                                          | Income Tax Accounting                                             |      |    | 34 | 
|                                                          | Business Combinations                                             |      |    | 35 | 
|                                                          | Goodwill                                                          |      |    | 35 | 
|7.   New Accounting
    Standards                         |                                                                   |      | 35 |   
|                                                          | Liabilities and Equity                                            |      |    | 35 | 
|                                                          | Non-monetary Transactions                                         |      |    | 35 | 
|8.   Pending Accounting
    Standards                     |                                                                   |      | 35 |   
|9.   Summary of Variances
    for 2004 compared with 2003 |                                                                   |      | 36 |   
|10. Forward-looking Statements                            |                                                                   |      | 37 |   
|11. Oil and Gas Reserve Reporting                         |                                                                   |      | 38 |   
|12. Non-GAAP Measures                                     |                                                                   |      | 38 |   
|13. Evaluation of Disclosure Controls
    and Procedures  |                                                                   |      | 39 |   



1



---



##### Table of Contents






INTRODUCTION


Intention of Managements Discussion and Analysis
(MD&A)




Review by the Audit Committee




Additional Husky Documents that should be considered by the
Reader




Use of Pronouns and Other Terms Denoting Husky




Standard Comparisons in this Document




Reclassifications and Materiality for Disclosures




Additional Reader Guidance








Forward-looking Statements




2



---



##### Table of Contents






1.    VISION





CORE BUSINESSES




Upstream




Midstream




Refined Products







OPERATING AND FINANCIAL STRATEGIES


Strategic Objective and Measures




Strategic Plans




Financial
Objective and Strategies




| |   |                                                                       
| | - | ----------------------------------------------------------------------
| |  | maintain debt to capitalization ratio of less than
    40 percent; and
|
| |  | maintain debt to cash flow from operations of less than two
    times.

Upstream
Strategies




| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase production through plant and facility optimization,
    increased property development, property consolidation and
    decreased tie-in time;
|
| |  | increase reserves through capital allocation to high-impact
    areas in the foothills, deep basin and northern plains;                               
|
| |  | continue exploration on our large land position in the Jeanne
    dArc Basin and delineation of White Rose satellite
    prospects;                  

3



---



##### Table of Contents





| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | continue exploration in China and development of Wenchang
    satellite prospects;                              
|
| |  | development of Indonesian natural gas and NGL property in the
    Madura Strait and exploration in the area; and
|
| |  | continue development of oil sands resources starting with first
    oil at Tucker in 2006.                      

Midstream
Strategies




| |   |                                                  
| | - | -------------------------------------------------
| |  | debottleneck and enhance performance of upgrader;
|
| |  | expand upgrader;                                 
|
| |  | expand pipeline and facilities;                  
|
| |  | expand natural gas storage capacity; and         
|
| |  | centralize sulphur handling facilities.          

Refined
Products Strategies




| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | continue to enhance retail outlets through automation,
    remodeling and expanded services;   
|
| |  | expand commercial marketing through application of our cardlock
    system;                    
|
| |  | expand ethanol production capacity;                                                            
|
| |  | continue to expand manufacture and use of ethanol as an
    oxygenate in gasoline;             
|
| |  | optimize throughput per outlet;                                                                
|
| |  | optimize asphalt product mix by seeking customers with high
    quality requirements;          
|
| |  | expand asphalt marketing reach and distribution network; and                                   
|
| |  | continue to debottleneck Lloydminster asphalt refinery and
    improve operational performance.






CAPABILITY TO DELIVER RESULTS




Upstream Strengths and Challenges






| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | large base of producing properties in Western Canada that
    generally respond well to increasingly sophisticated
    exploitation techniques and will continue to provide a large
    proportion of cash flow from operations necessary to undertake
    current and future major growth projects;
|
| |  | significant natural gas potential in the prospective deep basin,
    foothills and northwest plains;                                                                                                                                                                                                
|
| |  | longstanding experience in the heavy oil producing areas in the
    Lloydminster region of Alberta and Saskatchewan combined with an
    extensive infrastructure;                                                                                                                                  
|
| |  | substantial long-term growth potential in the oil sands regions
    of Alberta;                                                                                                                                                                                                                     
|
| |  | well established exploration capability in the Jeanne dArc
    Basin off the East Coast of Canada now combined with development
    experience with the White Rose oilfield;                                                                                                                       
|
| |  | well established relationships in Southeast Asia and readily
    transferable exploitation expertise.                                                                                                                                                                                               





| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | increasing costs driven by the high level of oil and gas
    industry activity;
|
| |  | labour market skills shortages;                                                

4



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##### Table of Contents





| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | highly competitive environment for materials and services
    required to undertake large projects;                                         
|
| |  | increasing difficulty and cost of managing the natural reservoir
    declines of our properties in the Western Canada Sedimentary
    Basin;
|
| |  | increasing resistance from opposing special interest groups; and                                                                            
|
| |  | increasing political pressure to implement fiscal regimes that
    might divert material cash flow available for investment.                

Midstream Strengths and Challenges






| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | modern reliable heavy oil upgrading facility located in the
    Lloydminster heavy oil producing region capable of expansion; 
|
| |  | reliable heavy oil pipeline systems well integrated in the
    Lloydminster producing region with expansion opportunities; and
|
| |  | large scale marketer capable of operating as a market balancer,
    serving the needs of both customer and supplier.          





| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | increasingly heavier crude feedstock requiring expansion and
    modification of our upgrader; and
|
| |  | competition for pipeline capacity in heavy crude oil producing
    regions.                       

Refined Products Strengths and Challenges






| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | established niche market with good marketing outlet locations
    and strategic land position;        
|
| |  | growing economies of scale for our ethanol production;                                                
|
| |  | largest manufacturer of paving asphalt in Western Canada; and                                         
|
| |  | modern asphalt manufacturing facilities located within the
    Lloydminster integrated infrastructure.





| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | limited access to refining margins due to lack of sufficient
    refining facilities;                                                      
|
| |  | motor fuel and related products are increasingly being offered
    by other industry retailers; and                                        
|
| |  | higher transportation costs as a result of plant locations and
    lack of asphalt distribution network in the U.S. and Eastern
    Canada.




KEY PERFORMANCE DRIVERS AND MEASURES






| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | find and develop proved reserves of crude oil and natural gas at
    a price that is competitive with our peers; and                             
|
| |  | acquire developed and undeveloped properties which complement
    our portfolio and provide enhanced potential for future
    sustainable growth.





| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | competitively optimize production through effective exploitation
    techniques;                                                                                                                                                                             
|
| |  | exercise selective acquisition and divestitures;                                                                                                                                                                                                             
|
| |  | maintain costs among the industrys lowest cost quartile
    performers; and                                                                                                                                                                                 
|
| |  | continue to progress with the development of our major expansion
    projects in the Jeanne dArc Basin, the Alberta oil sands,
    the Madura Strait natural gas and NGL project and optimization
    and expansion assessment of the Lloydminster Upgrader.

5



---



##### Table of Contents









Revenue Performance




Cost Performance




Capital Performance




People Performance




Health, Safety and Environmental Performance




6



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##### Table of Contents






2.    FINANCIAL AND OPERATIONAL
OVERVIEW





OVERVIEW


Financial Position





Comparative Shareholder Return





Financial Performance





7



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##### Table of Contents






SELECTED ANNUAL INFORMATION


|                                               |                            |                                      |        |         |        |  |     |         |         |   |        |     |      |         |     |     |     |   |        |       |      | 
|---------------------------------------------- | -------------------------- | ------------------------------------ | ------ | ------- | ------ |  | --- | ------- | ------- | - | ------ | --- | ---- | ------- | --- | --- | --- | - | ------ | ----- | ---- | 
|                                               |                            | Year ended December 31               |       
|                                               |                            |                                      |       
|                                               |                            |                                      |        | Percent |        |  |     |         | Percent |   |        |    
|                                               |                            | 2005                                 |        |         | Change |  |     | 2004(1) |         |   | Change |     |      | 2003(1) |    
|                                               |                            |                                      |        |         |        |  |     |         |         |   |        |     |      |         |    
|                                               |                            | ($ millions, except where indicated) |       
|Sales and operating revenues, net of royalties |                            | $                                    | 10,245 |         |        |  | 21  |         |         | $ | 8,440  |     |      |         | 10  |     |     | $ | 7,658  |      
|Segmented earnings                             |                            |                                      |        |         |        |  |     |         |         |   |        |     |      |         |     |     |     |   |        |      
|                                               | Upstream                   |                                      | $      | 1,524   |        |  |     | 114     |         |   | $      | 713 |      |         |     | (33 | )   |   | $      | 1,067 |     
|                                               | Midstream                  |                                      |        | 495     |        |  |     | 106     |         |   |        | 240 |      |         |     | 30  |     |   |        | 185   |     
|                                               | Refined Products           |                                      |        | 82      |        |  |     | 100     |         |   |        | 41  |      |         |     | 28  |     |   |        | 32    |     
|                                               | Corporate and eliminations |                                      |        | (98     | )      |  |     |         |         |   |        | 12  |      |         |     |     |     |   |        | 86    |     
|                                               |                            |                                      |        |         |        |  |     |         |         |   |        |     |      |         |    
|Net earnings                                   |                            | $                                    | 2,003  |         |        |  | 99  |         |         | $ | 1,006  |     |      |         | (27 | )   |     | $ | 1,370  |      
|                                               |                            |                                      |        |         |        |  |     |         |         |   |        |     |      |         |    
|                                               | Per share                  |                                      |        |         |        |  |     |         |         |   |        |     |      |         |     |     |     |   |        |       |     
|                                               |                            | Basic                                |        | $       | 4.72   |  |     |         | 99      |   |        | $   | 2.37 |         |     |     | (27 | ) |        | $     | 3.26 | 
|                                               |                            | Diluted                              |        | $       | 4.72   |  |     |         | 99      |   |        | $   | 2.37 |         |     |     | (27 | ) |        | $     | 3.25 | 
|Dividends per common share                     |                            | $                                    | 0.65   |         |        |  | 41  |         |         | $ | 0.46   |     |      |         | 21  |     |     | $ | 0.38   |      
|Special dividend per common share              |                            | $                                    | 1.00   |         |        |  | 85  |         |         | $ | 0.54   |     |      |         | (46 | )   |     | $ | 1.00   |      
|Total assets                                   |                            | $                                    | 15,797 |         |        |  | 19  |         |         | $ | 13,240 |     |      |         | 11  |     |     | $ | 11,949 |      
|Long-term debt excluding current portion       |                            | $                                    | 1,612  |         |        |  | (21 | )       |         | $ | 2,047  |     |      |         | 18  |     |     | $ | 1,730  |      
|Return on equity (percent)                     |                            |                                      | 29.2   |         |        |  |     |         |         |   | 17.0   |     |      |         |     |     |     |   | 26.4   |      
|Return on average capital employed (percent)   |                            |                                      | 22.8   |         |        |  |     |         |         |   | 13.0   |     |      |         |     |     |     |   | 18.9   |      
|                                               |                            |                                      |        |         |        |  |     |         |         |   |        |     |      |         |    






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | 2004 and 2003 amounts as restated. Refer to Notes 3 and 11
    to the Consolidated Financial Statements.




SELECTED QUARTERLY INFORMATION


|                                                                     |           |                                      |        |   |         |   |        |    |         |   |        |   |         |    |        |   |         |   |        |    |         |   |        |   |         |   |        |   |         |   |        |   |         | 
|-------------------------------------------------------------------- | --------- | ------------------------------------ | ------ | - | ------- | - | ------ | -- | ------- | - | ------ | - | ------- | -- | ------ | - | ------- | - | ------ | -- | ------- | - | ------ | - | ------- | - | ------ | - | ------- | - | ------ | - | ------- | 
|                                                                     |           | 2005                                 |        |   | 2004    |  
|                                                                     |           |                                      |        |   |         |  
|                                                                     |           | Q4                                   |        |   | Q3      |   |        | Q2 |         |   | Q1     |   |         | Q4 |        |   | Q3      |   |        | Q2 |         |   | Q1     |  
|                                                                     |           |                                      |        |   |         |   |        |    |         |   |        |   |         |    |        |   |         |   |        |    |         |   |        |  
|                                                                     |           | ($ millions, except where indicated) |       
|Sales and operating revenues, net of royalties                       |           | $                                    | 3,207  |   |         | $ | 2,594  |    |         | $ | 2,350  |   |         | $  | 2,094  |   |         | $ | 2,018  |    |         | $ | 2,191  |   |         | $ | 2,210  |   |         | $ | 2,021  |  
|Net earnings                                                         |           | $                                    | 669    |   |         | $ | 556    |    |         | $ | 394    |   |         | $  | 384    |   |         | $ | 225    |    |         | $ | 297    |   |         | $ | 229    |   |         | $ | 255    |  
|                                                                     | Per share |                                      |        |   |         |   |        |    |         |   |        |   |         |    |        |   |         |   |        |    |         |   |        |   |         |   |        |   |         |   |        |   |        
|                                                                     |           | Basic                                |        | $ | 1.58    |   |        | $  | 1.31    |   |        | $ | 0.93    |    |        | $ | 0.91    |   |        | $  | 0.53    |   |        | $ | 0.70    |   |        | $ | 0.54    |   |        | $ | 0.60    | 
|                                                                     |           | Diluted                              |        | $ | 1.58    |   |        | $  | 1.31    |   |        | $ | 0.93    |    |        | $ | 0.91    |   |        | $  | 0.53    |   |        | $ | 0.70    |   |        | $ | 0.54    |   |        | $ | 0.60    | 
|Share price                                                          |           |                                      |        |   |         |   |        |    |         |   |        |   |         |    |        |   |         |   |        |    |         |   |        |   |         |   |        |   |         |   |        |  
|                                                                     |           | High                                 |        | $ | 65.79   |   |        | $  | 69.95   |   |        | $ | 50.75   |    |        | $ | 40.49   |   |        | $  | 35.65   |   |        | $ | 31.15   |   |        | $ | 28.30   |   |        | $ | 28.04   | 
|                                                                     |           | Low                                  |        | $ | 50.50   |   |        | $  | 47.37   |   |        | $ | 35.12   |    |        | $ | 32.30   |   |        | $  | 30.05   |   |        | $ | 25.42   |   |        | $ | 23.74   |   |        | $ | 22.73   | 
|                                                                     |           | Close (end of period)                |        | $ | 59.00   |   |        | $  | 64.57   |   |        | $ | 48.73   |    |        | $ | 36.33   |   |        | $  | 34.25   |   |        | $ | 30.79   |   |        | $ | 25.65   |   |        | $ | 26.20   | 
|Shares traded (thousands)                                            |           |                                      | 38,731 |   |         |   | 34,521 |    |         |   | 46,988 |   |         |    | 46,370 |   |         |   | 37,417 |    |         |   | 35,074 |   |         |   | 26,654 |   |         |   | 22,824 |  
|Dividends declared per common share                                  |           | $                                    | 0.25   |   |         | $ | 0.14   |    |         | $ | 0.14   |   |         | $  | 0.12   |   |         | $ | 0.12   |    |         | $ | 0.12   |   |         | $ | 0.12   |   |         | $ | 0.10   |  
|Special dividend per common share                                    |           | $                                    | 1.00   |   |         | $ |       |    |         | $ |       |   |         | $  |       |   |         | $ | 0.54   |    |         | $ |       |   |         | $ |       |   |         | $ |       |  
|Weighted average number of common shares outstanding
    (thousands) |           |                                      |        |   |         |   |        |    |         |   |        |   |         |    |        |   |         |   |        |    |         |   |        |   |         |   |        |   |         |   |        |  
|                                                                     |           | Basic                                |        |   | 424,120 |   |        |    | 424,049 |   |        |   | 423,891 |    |        |   | 423,791 |   |        |    | 423,708 |   |        |   | 423,610 |   |        |   | 423,413 |   |        |   | 422,711 | 
|                                                                     |           | Diluted                              |        |   | 424,120 |   |        |    | 424,049 |   |        |   | 423,891 |    |        |   | 423,791 |   |        |    | 423,708 |   |        |   | 423,610 |   |        |   | 425,169 |   |        |   | 424,720 | 
|                                                                     |           |                                      |        |   |         |   |        |    |         |   |        |   |         |    |        |   |         |   |        |    |         |   |        |  

8



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##### Table of Contents






THE BUSINESS ENVIRONMENT IN 2005






| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | crude oil and natural gas prices;                                               
|
| |  | the price differential and demand related to various crude oil
    qualities;   
|
| |  | cost to find, develop, produce and deliver crude oil and natural
    gas;       
|
| |  | prevailing climatic conditions in our operating and marketing
    locations; and
|
| |  | the exchange rate between the Canadian and U.S. dollar.                         

|                                                          |  |      |       |  |      |   |       |      |  |   |       | 
|--------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|Average Benchmark Prices and U.S. Exchange Rate           |  | 2005 |       |  | 2004 |   |       | 2003 | 
|                                                          |  |      |       |  |      |   |       |      | 
|WTI crude
    oil(1)  (U.S.
    $/bbl)                    |  | $    | 56.56 |  |      | $ | 41.40 |      |  | $ | 31.04 | 
|Dated Brent  (U.S. $/bbl)                                 |  | $    | 54.38 |  |      | $ | 38.21 |      |  | $ | 28.94 | 
|Canadian par light crude 0.3 percent
    sulphur  ($/bbl) |  | $    | 69.28 |  |      | $ | 52.91 |      |  | $ | 43.56 | 
|Lloyd @ Lloydminster heavy crude  ($/bbl)                 |  | $    | 31.07 |  |      | $ | 28.75 |      |  | $ | 26.44 | 
|NYMEX natural
    gas(1)  (U.S.
    $/mmbtu)              |  | $    | 8.62  |  |      | $ | 6.14  |      |  | $ | 5.39  | 
|NIT natural gas  ($/GJ)                                   |  | $    | 8.04  |  |      | $ | 6.44  |      |  | $ | 6.35  | 
|WTI/ Lloyd crude blend differential  (U.S.
    $/bbl)     |  | $    | 21.01 |  |      | $ | 13.65 |      |  | $ | 8.55  | 
|U.S./ Canadian dollar exchange rate  (U.S. $)             |  | $    | 0.826 |  |      | $ | 0.769 |      |  | $ | 0.716 | 






|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(1) | Prices quoted are
    near-month contract
    prices for settlement during the next month.









9



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##### Table of Contents



WTI and Husky Average Crude Oil Prices


($/bbl)





NYMEX Natural Gas, NIT Natural Gas and Husky Average
Natural Gas Prices








SENSITIVITIES BY SEGMENT FOR 2005 RESULTS




|                       |                                                            |         |  |        |          |           |                   |                   |              |           |              |              |   |  |              |       |   |  |  |     |   |  |  |       |  
|---------------------- | ---------------------------------------------------------- | ------- |  | ------ | -------- | --------- | ----------------- | ----------------- | ------------ | --------- | ------------ | ------------ | - |  | ------------ | ----- | - |  |  | --- | - |  |  | ----- | -
|                       |                                                            | 2005    |  |        |          |           | Effect on Pre-tax |                   |              | Effect on |             
|Sensitivity Analysis   |                                                            | Average |  |        | Increase |           |                   | Cash Flow         |              |           | Net Earnings |             
|                       |                                                            |         |  |        |          |           |                   |                   |              |           |              |             
|                       |                                                            |         |  |        |          | ($        |                   |                   | ($/share)(5) |           |              | ($ millions) |   |  | ($/share)(5) |      
|                       |                                                            |         |  |        |          | millions) |                   |                   |              |           |              |              |  
|Upstream and Midstream |                                                            |         |  |        |          |           |                   |                   |              |           |              |              |   |  |              |       |   |  |  |     |   |  |  |      
|                       | WTI benchmark crude oil price                              |         |  | $56.56 |          |           |                   | U.S. $1.00/bbl    |              |           |              | 77           |   |  |              | 0.18  |   |  |  | 50  |   |  |  | 0.12  |  
|                       | NYMEX benchmark natural gas
    price(1)                   |         |  | $8.62  |          |           |                   | U.S.  $0.20/mmbtu |              |           |              | 36           |   |  |              | 0.08  |   |  |  | 22  |   |  |  | 0.05  |  
|                       | Upgrading
    differential(2)                              |         |  | $30.70 |          |           |                   | Cdn $1.00/bbl     |              |           |              | (27          | ) |  |              | (0.06 | ) |  |  | (17 | ) |  |  | (0.04 | )
|                       | Exchange rate (U.S. $ per
    Cdn $)(3)                    |         |  | $0.826 |          |           |                   | U.S. $0.01        |              |           |              | (58          | ) |  |              | (0.14 | ) |  |  | (39 | ) |  |  | (0.09 | )
|Refined Products       |                                                            |         |  |        |          |           |                   |                   |              |           |              |              |   |  |              |       |   |  |  |     |   |  |  |      
|                       | Light oil margins                                          |         |  | $0.039 |          |           |                   | Cdn $0.005/litre  |              |           |              | 16           |   |  |              | 0.04  |   |  |  | 10  |   |  |  | 0.02  |  
|                       | Asphalt margins                                            |         |  | $10.05 |          |           |                   | Cdn $1.00/bbl     |              |           |              | 8            |   |  |              | 0.02  |   |  |  | 5   |   |  |  | 0.01  |  
|Consolidated           |                                                            |         |  |        |          |           |                   |                   |              |           |              |              |   |  |              |       |   |  |  |     |   |  |  |      
|                       | Year-end translation of U.S. $ debt (U.S. $ per
    Cdn $) |         |  | $0.858 | (4)      |           |                   | U.S. $0.01        |              |           |              |             |   |  |              |      |   |  |  | 10  |   |  |  | 0.02  |  

10



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##### Table of Contents








|    |                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------
|(1) | Includes decrease in earnings related to natural gas consumption.                                                  
|   
|(2) | Includes impact of upstream and upgrading operations only.                                                         
|   
|(3) | Assumes no foreign exchange gains or losses on U.S. dollar
    denominated long-term debt and other monetary items.
|   
|(4) | U.S./ Canadian dollar exchange rate at December 31, 2005.                                                          
|   
|(5) | Based on December 31, 2005 common shares outstanding of
    424.1 million.                                         






|   |                      
|-- | ---------------------
|3. | RESULTS OF OPERATIONS

Segmented Earnings








UPSTREAM


Earnings Summary and 2005 Variance Analysis


|                                         |  |                        |       |  |      |   |       |      |  |   |       | 
|---------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                         |  | Year ended December 31 |      
|                                         |  |                        |      
|Upstream Earnings Summary                |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                                         |  |                        |       |  |      |   |       |      | 
|                                         |  | ($ millions)           |      
|Gross revenues                           |  | $                      | 5,207 |  |      | $ | 4,392 |      |  | $ | 3,796 | 
|Royalties                                |  |                        | 840   |  |      |   | 711   |      |  |   | 584   | 
|Hedging loss                             |  |                        |      |  |      |   | 561   |      |  |   | 26    | 
|                                         |  |                        |       |  |      |   |       |      | 
|Net revenues                             |  |                        | 4,367 |  |      |   | 3,120 |      |  |   | 3,186 | 
|Operating and administration expenses    |  |                        | 1,050 |  |      |   | 967   |      |  |   | 873   | 
|Depletion, depreciation and amortization |  |                        | 1,144 |  |      |   | 1,077 |      |  |   | 918   | 
|Income taxes                             |  |                        | 649   |  |      |   | 363   |      |  |   | 328   | 
|                                         |  |                        |       |  |      |   |       |      | 
|Earnings                                 |  | $                      | 1,524 |  |      | $ | 713   |      |  | $ | 1,067 | 
|                                         |  |                        |       |  |      |   |       |      | 





| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | higher natural gas and crude oil prices increased 2005 revenue
    by $947 million; and                                                      
|
| |  | absence of commodity price hedging in 2005; 2004 hedging was
    primarily on 85 mbbls/day of crude oil at a strike price of U.S.
    $27.46.

11



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##### Table of Contents







| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | higher royalties resulting from higher commodity prices and
    Terra Nova progressing to a higher royalty rate;     
|
| |  | lower sales volume of crude oil and natural gas, the net effect
    of which lowered revenue by $145 million in 2005;
|
| |  | unit operating costs were $0.80/boe higher in 2005 compared with
    2004 as a result of:                            



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | higher fuel and energy related costs;                                                             
|
| |  | increasing level of field maintenance costs involved in crude
    oil exploitation activities; and
|
| |  | increasing wells and compression for natural gas production.                                      



| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | higher unit depletion, depreciation and amortization, which was
    $9.95/boe during 2005 versus $9.06 during 2004 as a
    result of:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | start up of operations at the White Rose oilfield offshore the
    East Coast of Canada; and
|
| |  | increasing exploration and exploitation costs in the Western
    Canada Sedimentary Basin.  

|                              |                        |              |       |       |         |   |       |       |   |   |       |    |  |   |       |       |  
|----------------------------- | ---------------------- | ------------ | ----- | ----- | ------- | - | ----- | ----- | - | - | ----- | -- |  | - | ----- | ----- | -
|                              |                        | Crude Oil    |       |       | Natural |   |       |       |   |  
|Net Revenue Variance Analysis |                        | & NGL        |       |       | Gas     |   |       | Other |   |   | Total |   
|                              |                        |              |       |       |         |   |       |       |   |   |       |   
|                              |                        | ($ millions) |      
|Year ended December 31, 2003  |                        |              |       |       |         |   |       |       |   |   |       |    |  |   |       |      
|Net revenues                  |                        | $            | 2,097 |       |         | $ | 1,024 |       |   | $ | 65    |    |  | $ | 3,186 |      
|                              | Price changes          |              |       | 359   |         |   |       | 98    |   |   |       |   |  |   |       | 457   |  
|                              | Volume changes         |              |       | (36   | )       |   |       | 172   |   |   |       |   |  |   |       | 136   |  
|                              | Royalties              |              |       | (67   | )       |   |       | (60   | ) |   |       |   |  |   |       | (127  | )
|                              | Hedging                |              |       | (514  | )       |   |       | (21   | ) |   |       |   |  |   |       | (535  | )
|                              | Processing and sulphur |              |       |      |         |   |       |      |   |   |       | 3  |  |   |       | 3     |  
|                              |                        |              |       |       |         |   |       |       |   |   |       |   
|Year ended December 31, 2004  |                        |              |       |       |         |   |       |       |   |   |       |    |  |   |       |      
|Net revenues                  |                        |              | 1,839 |       |         |   | 1,213 |       |   |   | 68    |    |  |   | 3,120 |      
|                              | Price changes          |              |       | 1,081 |         |   |       | 427   |   |   |       |   |  |   |       | 1,508 |  
|                              | Volume changes         |              |       | (120  | )       |   |       | (25   | ) |   |       |   |  |   |       | (145  | )
|                              | Royalties              |              |       | (71   | )       |   |       | (58   | ) |   |       |   |  |   |       | (129  | )
|                              | Processing and sulphur |              |       |      |         |   |       |      |   |   |       | 13 |  |   |       | 13    |  
|                              |                        |              |       |       |         |   |       |       |   |   |       |   
|Year ended December 31, 2005  |                        |              |       |       |         |   |       |       |   |   |       |    |  |   |       |      
|Net revenues                  |                        | $            | 2,729 |       |         | $ | 1,557 |       |   | $ | 81    |    |  | $ | 4,367 |      
|                              |                        |              |       |       |         |   |       |       |   |   |       |   

Production





12



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|                                            |  |                        |       |  |      |  |       |      |  |  |       | 
|------------------------------------------- |  | ---------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- | 
|                                            |  | Year ended December 31 |      
|                                            |  |                        |      
|Daily Production, before Royalties          |  | 2005                   |       |  | 2004 |  |       | 2003 | 
|                                            |  |                        |       |  |      |  |       |      | 
|Light crude oil & NGL  (mbbls/day)          |  |                        | 64.6  |  |      |  | 66.2  |      |  |  | 71.6  | 
|Medium crude oil  (mbbls/day)               |  |                        | 31.1  |  |      |  | 35.0  |      |  |  | 39.2  | 
|Heavy crude oil  (mbbls/day)                |  |                        | 106.0 |  |      |  | 108.9 |      |  |  | 99.9  | 
|                                            |  |                        |       |  |      |  |       |      | 
|Total crude oil & NGL  (mbbls/day)          |  |                        | 201.7 |  |      |  | 210.1 |      |  |  | 210.7 | 
|Natural gas  (mmcf/day)                     |  |                        | 680.0 |  |      |  | 689.2 |      |  |  | 610.6 | 
|Barrels of oil equivalent (6:1)  (mboe/day) |  |                        | 315.0 |  |      |  | 325.0 |      |  |  | 312.5 | 

|                     |                             |                        |   |       |      |  |   |       |  |  |   |       | 
|-------------------- | --------------------------- | ---------------------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                     |                             | Year ended December 31 |  
|                     |                             |                        |  
|Average Sales Prices |                             | 2005                   |   |       | 2004 |  |   | 2003  | 
|                     |                             |                        |   |       |      |  |   |       | 
|Crude oil($/bbl)     |                             |                        |   |       |      |  |   |       |  |  |   |      
|                     | Light crude oil & NGL       |                        | $ | 61.56 |      |  | $ | 48.34 |  |  | $ | 39.53 | 
|                     | Medium crude oil            |                        |   | 43.44 |      |  |   | 36.13 |  |  |   | 31.42 | 
|                     | Heavy crude oil             |                        |   | 31.09 |      |  |   | 28.66 |  |  |   | 25.87 | 
|                     | Total average               |                        |   | 42.75 |      |  |   | 36.07 |  |  |   | 31.54 | 
|                     | Total average after hedging |                        |   | 42.75 |      |  |   | 28.43 |  |  |   | 30.93 | 
|Natural gas($/mcf)   |                             |                        |   |       |      |  |   |       |  |  |   |      
|                     | Average                     |                        | $ | 7.96  |      |  | $ | 6.25  |  |  | $ | 5.86  | 
|                     | Average after hedging       |                        |   | 7.96  |      |  |   | 6.24  |  |  |   | 5.94  | 

|                                                       |                       |                        |  |      |      |  |  |      |  |  |  |      | 
|------------------------------------------------------ | --------------------- | ---------------------- |  | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|                                                       |                       | Year ended December 31 | 
|                                                       |                       |                        | 
|Upstream Revenue Mix(1)                                |                       | 2005                   |  |      | 2004 |  |  | 2003 | 
|                                                       |                       |                        |  |      |      |  |  |      | 
|Percentage of upstream sales revenues, after royalties |                       |                        |  |      |      |  |  |      |  |  |  |     
|                                                       | Light crude oil & NGL |                        |  | 29%  |      |  |  | 27%  |  |  |  | 29%  | 
|                                                       | Medium crude oil      |                        |  | 9%   |      |  |  | 11%  |  |  |  | 12%  | 
|                                                       | Heavy crude oil       |                        |  | 24%  |      |  |  | 27%  |  |  |  | 26%  | 
|                                                       | Natural gas           |                        |  | 38%  |      |  |  | 35%  |  |  |  | 33%  | 
|                                                       |                       |                        |  |      |      |  |  |      | 
|                                                       | Total                 |                        |  | 100% |      |  |  | 100% |  |  |  | 100% | 
|                                                       |                       |                        |  |      |      |  |  |      | 

|                                      |                       |                        |  |     |      |  |  |      |  |  |  |     | 
|------------------------------------- | --------------------- | ---------------------- |  | --- | ---- |  |  | ---- |  |  |  | --- | 
|                                      |                       | Year ended December 31 | 
|                                      |                       |                        | 
|Effective Royalty Rates(1)            |                       | 2005                   |  |     | 2004 |  |  | 2003 | 
|                                      |                       |                        |  |     |      |  |  |      | 
|Percentage of upstream sales revenues |                       |                        |  |     |      |  |  |      |  |  |  |    
|                                      | Light crude oil & NGL |                        |  | 14% |      |  |  | 13%  |  |  |  | 12% | 
|                                      | Medium crude oil      |                        |  | 18% |      |  |  | 18%  |  |  |  | 17% | 
|                                      | Heavy crude oil       |                        |  | 12% |      |  |  | 12%  |  |  |  | 11% | 
|                                      | Natural gas           |                        |  | 20% |      |  |  | 22%  |  |  |  | 22% | 
|                                      | Total                 |                        |  | 16% |      |  |  | 16%  |  |  |  | 16% | 
|                                      |                       |                        |  |     |      |  |  |      | 






Operating Netbacks


|                                           |  |                        |       |  |      |   |       |      |  |   |       | 
|------------------------------------------ |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                           |  | Year ended December 31 |      
|                                           |  |                        |      
|Western Canada Light Crude Oil Netbacks(1) |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                                           |  |                        |       |  |      |   |       |      | 
|                                           |  | (per boe)              |      
|Sales revenues before hedging              |  | $                      | 60.74 |  |      | $ | 46.12 |      |  | $ | 39.91 | 
|Royalties                                  |  |                        | 8.66  |  |      |   | 7.76  |      |  |   | 7.28  | 
|Operating costs                            |  |                        | 9.86  |  |      |   | 8.94  |      |  |   | 9.27  | 
|                                           |  |                        |       |  |      |   |       |      | 
|Netback                                    |  | $                      | 42.22 |  |      | $ | 29.42 |      |  | $ | 23.36 | 
|                                           |  |                        |       |  |      |   |       |      | 

13



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|                                            |  |                        |       |  |      |   |       |      |  |   |       | 
|------------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                            |  | Year ended December 31 |      
|                                            |  |                        |      
|Western Canada Medium Crude Oil Netbacks(1) |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                                            |  |                        |       |  |      |   |       |      | 
|                                            |  | (per boe)              |      
|Sales revenues before hedging               |  | $                      | 43.67 |  |      | $ | 36.20 |      |  | $ | 31.57 | 
|Royalties                                   |  |                        | 7.77  |  |      |   | 6.10  |      |  |   | 5.28  | 
|Operating costs                             |  |                        | 10.97 |  |      |   | 10.07 |      |  |   | 9.53  | 
|                                            |  |                        |       |  |      |   |       |      | 
|Netback                                     |  | $                      | 24.93 |  |      | $ | 20.03 |      |  | $ | 16.76 | 
|                                            |  |                        |       |  |      |   |       |      | 






|    |                                                          
|--- | ---------------------------------------------------------
|(1) | Includes associated
    co-products converted
    to boe.

|                                           |  |                        |       |  |      |   |       |      |  |   |       | 
|------------------------------------------ |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                           |  | Year ended December 31 |      
|                                           |  |                        |      
|Western Canada Heavy Crude Oil Netbacks(1) |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                                           |  |                        |       |  |      |   |       |      | 
|                                           |  | (per boe)              |      
|Sales revenues before hedging              |  | $                      | 31.22 |  |      | $ | 28.73 |      |  | $ | 25.98 | 
|Royalties                                  |  |                        | 3.75  |  |      |   | 3.38  |      |  |   | 2.76  | 
|Operating costs                            |  |                        | 9.90  |  |      |   | 9.33  |      |  |   | 9.09  | 
|                                           |  |                        |       |  |      |   |       |      | 
|Netback                                    |  | $                      | 17.57 |  |      | $ | 16.02 |      |  | $ | 14.13 | 
|                                           |  |                        |       |  |      |   |       |      | 

|                                       |  |                        |      |  |      |   |      |      |  |   |      | 
|-------------------------------------- |  | ---------------------- | ---- |  | ---- | - | ---- | ---- |  | - | ---- | 
|                                       |  | Year ended December 31 |     
|                                       |  |                        |     
|Western Canada Natural Gas Netbacks(2) |  | 2005                   |      |  | 2004 |   |      | 2003 | 
|                                       |  |                        |      |  |      |   |      |      | 
|                                       |  | (per mcfge)            |     
|Sales revenues before hedging          |  | $                      | 8.02 |  |      | $ | 6.25 |      |  | $ | 5.79 | 
|Royalties                              |  |                        | 1.76 |  |      |   | 1.44 |      |  |   | 1.29 | 
|Operating costs                        |  |                        | 1.04 |  |      |   | 0.89 |      |  |   | 0.79 | 
|                                       |  |                        |      |  |      |   |      |      | 
|Netback                                |  | $                      | 5.22 |  |      | $ | 3.92 |      |  | $ | 3.71 | 
|                                       |  |                        |      |  |      |   |      |      | 

|                                          |  |                        |       |  |      |   |       |      |  |   |       | 
|----------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                          |  | Year ended December 31 |      
|                                          |  |                        |      
|Total Western Canada Upstream Netbacks(1) |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                                          |  |                        |       |  |      |   |       |      | 
|                                          |  | (per boe)              |      
|Sales revenues before hedging             |  | $                      | 42.53 |  |      | $ | 35.01 |      |  | $ | 31.58 | 
|Royalties                                 |  |                        | 7.45  |  |      |   | 6.22  |      |  |   | 5.48  | 
|Operating costs                           |  |                        | 8.59  |  |      |   | 7.85  |      |  |   | 7.56  | 
|                                          |  |                        |       |  |      |   |       |      | 
|Netback                                   |  | $                      | 26.49 |  |      | $ | 20.94 |      |  | $ | 18.54 | 
|                                          |  |                        |       |  |      |   |       |      | 

|                              |  |                        |       |  |      |   |       |      |  |   |       | 
|----------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                              |  | Year ended December 31 |      
|                              |  |                        |      
|Terra Nova Crude Oil Netbacks |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                              |  |                        |       |  |      |   |       |      | 
|                              |  | (per boe)              |      
|Sales revenues before hedging |  | $                      | 62.19 |  |      | $ | 47.87 |      |  | $ | 38.91 | 
|Royalties                     |  |                        | 7.95  |  |      |   | 1.80  |      |  |   | 0.81  | 
|Operating costs               |  |                        | 4.53  |  |      |   | 3.28  |      |  |   | 3.16  | 
|                              |  |                        |       |  |      |   |       |      | 
|Netback                       |  | $                      | 49.71 |  |      | $ | 42.79 |      |  | $ | 34.94 | 
|                              |  |                        |       |  |      |   |       |      | 

|                              |  |                        |       |  |      |   |      |  |  |   |   | 
|----------------------------- |  | ---------------------- | ----- |  | ---- | - | ---- |  |  | - | - | 
|                              |  | Year ended December 31
|                              |  |                       
|White Rose Crude Oil Netbacks |  | 2005                   |       |  | 2004 |   | 2003
|                              |  |                        |       |  |      |   |     
|                              |  | (per boe)             
|Sales revenues before hedging |  | $                      | 63.68 |  |      | $ |     |  |  | $ |  | 
|Royalties                     |  |                        | 0.61  |  |      |   |     |  |  |   |  | 
|Operating costs               |  |                        | 6.72  |  |      |   |     |  |  |   |  | 
|                              |  |                        |       |  |      |   |      |  | 
|Netback                       |  | $                      | 56.35 |  |      | $ |     |  |  | $ |  | 
|                              |  |                        |       |  |      |   |      |  | 

14



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|                              |  |                        |       |  |      |   |       |      |  |   |       | 
|----------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                              |  | Year ended December 31 |      
|                              |  |                        |      
|Total Canada Netbacks(1)      |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                              |  |                        |       |  |      |   |       |      | 
|                              |  | (per boe)              |      
|Sales revenues before hedging |  | $                      | 43.69 |  |      | $ | 35.60 |      |  | $ | 32.01 | 
|Royalties                     |  |                        | 7.36  |  |      |   | 6.03  |      |  |   | 5.21  | 
|Operating costs               |  |                        | 8.39  |  |      |   | 7.66  |      |  |   | 7.30  | 
|                              |  |                        |       |  |      |   |       |      | 
|Netback                       |  | $                      | 27.94 |  |      | $ | 21.91 |      |  | $ | 19.50 | 
|                              |  |                        |       |  |      |   |       |      | 






|    |                                                            
|--- | -----------------------------------------------------------
|(1) | Includes associated
    co-products converted
    to boe.  
|   
|(2) | Includes associated
    co-products converted
    to mcfge.

|                              |  |                        |       |  |      |   |       |      |  |   |       | 
|----------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                              |  | Year ended December 31 |      
|                              |  |                        |      
|Wenchang Crude Oil Netbacks   |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                              |  |                        |       |  |      |   |       |      | 
|                              |  | (per boe)              |      
|Sales revenues before hedging |  | $                      | 63.15 |  |      | $ | 47.66 |      |  | $ | 41.45 | 
|Royalties                     |  |                        | 5.93  |  |      |   | 4.91  |      |  |   | 3.80  | 
|Operating costs               |  |                        | 2.92  |  |      |   | 2.16  |      |  |   | 1.94  | 
|                              |  |                        |       |  |      |   |       |      | 
|Netback                       |  | $                      | 54.30 |  |      | $ | 40.59 |      |  | $ | 35.71 | 
|                              |  |                        |       |  |      |   |       |      | 

|                                   |  |                        |       |  |      |   |       |      |  |   |       | 
|---------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                   |  | Year ended December 31 |      
|                                   |  |                        |      
|Total Upstream Segment Netbacks(1) |  | 2005                   |       |  | 2004 |   |       | 2003 | 
|                                   |  |                        |       |  |      |   |       |      | 
|                                   |  | (per boe)              |      
|Sales revenues before hedging      |  | $                      | 44.56 |  |      | $ | 36.34 |      |  | $ | 32.69 | 
|Royalties                          |  |                        | 7.29  |  |      |   | 5.96  |      |  |   | 5.11  | 
|Operating costs                    |  |                        | 8.12  |  |      |   | 7.32  |      |  |   | 6.92  | 
|                                   |  |                        |       |  |      |   |       |      | 
|Netback                            |  | $                      | 29.15 |  |      | $ | 23.06 |      |  | $ | 20.66 | 
|                                   |  |                        |       |  |      |   |       |      | 






|    |                                                  
|--- | -------------------------------------------------
|(1) | Includes associated co-products converted to boe.

Oil and Gas Reserves





51-101 51-101.




15



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##### Table of Contents



51-101, 40-F






|                    |             |                                   |       |     |                    |  |       |              |  |  |                     |     |  |      |     |    |      |  |     |      |  |  |      |    |  |      |       |     |      |  |       |      |  |  |       |     |  |  |       |     |  |  |       |     |  |  |       |     | 
|------------------- | ----------- | --------------------------------- | ----- | --- | ------------------ |  | ----- | ------------ |  |  | ------------------- | --- |  | ---- | --- | -- | ---- |  | --- | ---- |  |  | ---- | -- |  | ---- | ----- | --- | ---- |  | ----- | ---- |  |  | ----- | --- |  |  | ----- | --- |  |  | ----- | --- |  |  | ----- | --- | 
|Crude Oil and       |             | Proved Developed                  |       |     | Proved Undeveloped |  |       | Total Proved |  |  | Proved and Probable |    
|Natural Gas         |             |                                   |       |     |                    |  |       |              |  |  |                     |    
|Reserves Summary(1) |             | 2005                              |       |     | 2004               |  |       | 2003         |  |  | 2005                |     |  | 2004 |     |    | 2003 |  |     | 2005 |  |  | 2004 |    |  | 2003 |       |     | 2005 |  |       | 2004 |  |  | 2003  |    
|                    |             |                                   |       |     |                    |  |       |              |  |  |                     |     |  |      |     |    |      |  |     |      |  |  |      |    |  |      |       |     |      |  |       |      |  |  |       |    
|                    |             | (constant price before royalties) |      
|Crude oil (mmbbls)  |             |                                   |       |     |                    |  |       |              |  |  |                     |     |  |      |     |    |      |  |     |      |  |  |      |    |  |      |       |     |      |  |       |      |  |  |       |     |  |  |       |     |  |  |       |     |  |  |       |    
|                    | Light & NGL |                                   |       | 226 |                    |  |       | 191          |  |  |                     | 200 |  |      |     | 47 |      |  |     | 47   |  |  |      | 23 |  |      |       | 273 |      |  |       | 238  |  |  |       | 223 |  |  |       | 462 |  |  |       | 465 |  |  |       | 474 | 
|                    | Medium      |                                   |       | 80  |                    |  |       | 80           |  |  |                     | 86  |  |      |     | 11 |      |  |     | 6    |  |  |      | 8  |  |      |       | 91  |      |  |       | 86   |  |  |       | 94  |  |  |       | 105 |  |  |       | 96  |  |  |       | 108 | 
|                    | Heavy       |                                   |       | 140 |                    |  |       | 91           |  |  |                     | 156 |  |      |     | 77 |      |  |     | 14   |  |  |      | 71 |  |      |       | 217 |      |  |       | 105  |  |  |       | 227 |  |  |       | 291 |  |  |       | 150 |  |  |       | 319 | 
|                    | Bitumen     |                                   |       |    |                    |  |       |             |  |  |                     |    |  |      |     | 48 |      |  |     |     |  |  |      |   |  |      |       | 48  |      |  |       |     |  |  |       |    |  |  |       | 951 |  |  |       | 79  |  |  |       | 79  | 
|                    |             |                                   |       |     |                    |  |       |              |  |  |                     |     |  |      |     |    |      |  |     |      |  |  |      |    |  |      |       |     |      |  |       |      |  |  |       |    
|                    |             |                                   | 446   |     |                    |  | 362   |              |  |  | 442                 |     |  |      | 183 |    |      |  | 67  |      |  |  | 102  |    |  |      | 629   |     |      |  | 429   |      |  |  | 544   |     |  |  | 1,809 |     |  |  | 790   |     |  |  | 980   |    
|Natural gas (bcf)   |             |                                   | 1,710 |     |                    |  | 1,745 |              |  |  | 1,712               |     |  |      | 426 |    |      |  | 424 |      |  |  | 347  |    |  |      | 2,136 |     |      |  | 2,169 |      |  |  | 2,059 |     |  |  | 2,709 |     |  |  | 2,724 |     |  |  | 2,507 |    
|                    |             |                                   |       |     |                    |  |       |              |  |  |                     |     |  |      |     |    |      |  |     |      |  |  |      |    |  |      |       |     |      |  |       |      |  |  |       |    
|Total (mmboe)       |             |                                   | 731   |     |                    |  | 653   |              |  |  | 727                 |     |  |      | 254 |    |      |  | 138 |      |  |  | 160  |    |  |      | 985   |     |      |  | 791   |      |  |  | 887   |     |  |  | 2,260 |     |  |  | 1,244 |     |  |  | 1,397 |    
|                    |             |                                   |       |     |                    |  |       |              |  |  |                     |     |  |      |     |    |      |  |     |      |  |  |      |    |  |      |       |     |      |  |       |      |  |  |       |    






|    |                                                                                          
|--- | -----------------------------------------------------------------------------------------
|(1) | Refer to Terms and Abbreviations in this Annual
    Report for definitions of reserves.

2005
Reserve Additions








16



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##### Table of Contents



|                                     |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |   |  |     |       |      |   |       |       |      |   |     |       |      |  
|------------------------------------ | -------------------- | --------------------------------------------- | --- | --- | ------------- | - | -- | -------- | --- | - | ------- | --- | ----- | -------- | ----- | ----- | -------- | - | ----- | -------- | ----- | ------- | ----- | --- | ----- | -------- | -- | ------- | ----- | - | - | ------- | - |  | --- | ----- | ---- | - | ----- | ----- | ---- | - | --- | ----- | ---- | -
|                                     |                      | Canada                                        |     |     | International |   |    | Total    |    
|                                     |                      |                                               |     |     |               |   |    |          |    
|                                     |                      | Western Canada                                |     |     | East          |   |    |          |     |  
|                                     |                      |                                               |     |     | Coast         |   |    |          |     |  
|                                     |                      | Light                                         |     |     |               |   |    |          |     |   |         |    
|                                     |                      | Crude                                         |     |     | Medium        |   |    | Heavy    |     |   |         |     | Light |          |       | Light |          |   |       |          | Crude |         |       |    
|Reconciliation of Proved             |                      | Oil &                                         |     |     | Crude         |   |    | Crude    |     |   | Natural |     |       |          |       | Crude |          |   | Crude |          |       | Natural |       |     | Oil & |          |    | Natural |       |   |  
|Reserves                             |                      | NGL                                           |     |     | Oil           |   |    | Oil      |     |   | gas     |     |       | Bitumen  |       |       | Oil      |   |       | Oil      |       |         | Gas   |     |       | NGL      |    |         | Gas   |   |   |        
|                                     |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |  
|                                     |                      | (mmbbls)                                      |     |     | (mmbbls)      |   |    | (mmbbls) |     |   | (bcf)   |     |       | (mmbbls) |       |       | (mmbbls) |   |       | (mmbbls) |       |         | (bcf) |     |       | (mmbbls) |    |         | (bcf) |   |   | (mmboe) |  
|                                     |                      | (constant price before royalties)             |    
|Proved reserves at December 31, 2004 |                      |                                               | 171 |     |               |   | 86 |          |     |   | 225     |     |       |          | 2,172 |       |          |   |      |          |       |         | 47    |     |       |          | 20 |         |       |   |  |         |   |  | 549 |       |      |   | 2,172 |       |      |   | 911 |      
|                                     |                      | Heavy oil price revision                      |     |     |              |   |    |          |    |   |         |     | (120  | )        |       |       | (3       | ) |       |          |      |         |       |     |      |          |    |         |      |   |   |         |  |  |     |       | (120 | ) |       |       | (3   | ) |     |       | (120 | )
|                                     |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |  
|Proved reserves at December 31, 2004 |                      |                                               | 171 |     |               |   | 86 |          |     |   | 105     |     |       |          | 2,169 |       |          |   |      |          |       |         | 47    |     |       |          | 20 |         |       |   |  |         |   |  | 429 |       |      |   | 2,169 |       |      |   | 791 |      
|                                     |                      | Technical revisions                           |     |     | 3             |   |    |          | 9   |   |         |     | 1     |          |       |       | (68      | ) |       |          |      |         |       |     | 9     |          |    |         | 2     |   |   |         |  |  |     |       | 24   |   |       |       | (68  | ) |     |       | 13   |  
|                                     |                      | Heavy oil price revision                      |     |     |              |   |    |          |    |   |         |     | 120   |          |       |       | 3        |   |       |          |      |         |       |     |      |          |    |         |      |   |   |         |  |  |     |       | 120  |   |       |       | 3    |   |     |       | 120  |  
|                                     |                      | Purchase of reserves in place                 |     |     |              |   |    |          |    |   |         |     | 7     |          |       |       | 3        |   |       |          |      |         |       |     |      |          |    |         |      |   |   |         |  |  |     |       | 7    |   |       |       | 3    |   |     |       | 7    |  
|                                     |                      | Sale of reserves in place                     |     |     |              |   |    |          | (3  | ) |         |     | (4    | )        |       |       | (9       | ) |       |          |      |         |       |     |      |          |    |         |      |   |   |         |  |  |     |       | (7   | ) |       |       | (9   | ) |     |       | (9   | )
|                                     |                      | Discoveries, extensions and improved recovery |     |     | 5             |   |    |          | 10  |   |         |     | 27    |          |       |       | 286      |   |       |          | 48    |         |       |     | 39    |          |    |         | 1     |   |   |         |  |  |     |       | 130  |   |       |       | 286  |   |     |       | 178  |  
|                                     |                      | Production                                    |     |     | (12           | ) |    |          | (11 | ) |         |     | (39   | )        |       |       | (248     | ) |       |          |      |         |       |     | (6    | )        |    |         | (6    | ) |   |         |  |  |     |       | (74  | ) |       |       | (248 | ) |     |       | (115 | )
|                                     |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |  
|Proved reserves at December 31, 2005 |                      |                                               | 167 |     |               |   | 91 |          |     |   | 217     |     |       |          | 2,136 |       |          |   | 48    |          |       |         | 89    |     |       |          | 17 |         |       |   |  |         |   |  | 629 |       |      |   | 2,136 |       |      |   | 985 |      
|                                     |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |  
|Proved and probable reserves         |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |   |  |     |       |      |   |       |       |      |   |     |      
|                                     | At December 31, 2005 |                                               |     | 225 |               |   |    | 105      |     |   |         | 291 |       |          |       | 2,542 |          |   |       | 951      |       |         |       | 207 |       |          |    | 30      |       |   |   | 167     |   |  |     | 1,809 |      |   |       | 2,709 |      |   |     | 2,260 |     
|                                     |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |  
|                                     | At December 31, 2004 |                                               |     | 229 |               |   |    | 96       |     |   |         | 150 |       |          |       | 2,557 |          |   |       | 79       |       |         |       | 203 |       |          |    | 33      |       |   |   | 167     |   |  |     | 790   |      |   |       | 2,724 |      |   |     | 1,244 |     
|                                     |                      |                                               |     |     |               |   |    |          |     |   |         |     |       |          |       |       |          |   |       |          |       |         |       |     |       |          |    |         |       |   |   |         |  

|                                               |                               |                                   |     |      |               |  |    |          |   |  |         |     |       |          |       |       |          |       |             |          |  |       |          |    |         |       |    |    |         |  |     |     |   |  |       |      |   |  |     |      |  
|---------------------------------------------- | ----------------------------- | --------------------------------- | --- | ---- | ------------- |  | -- | -------- | - |  | ------- | --- | ----- | -------- | ----- | ----- | -------- | ----- | ----------- | -------- |  | ----- | -------- | -- | ------- | ----- | -- | -- | ------- |  | --- | --- | - |  | ----- | ---- | - |  | --- | ---- | -
|                                               |                               | Canada                            |     |      | International |  |    | Total    |  
|                                               |                               |                                   |     |      |               |  |    |          |  
|                                               |                               |                                   |     | East |               |  |    |          |  
|                                               |                               | Western Canada                    |     |      | Coast         |  |    |          |   | 
|                                               |                               |                                   |     |      |               |  |    |          |   | 
|                                               |                               | Light                             |     |      |               |  |    |          |   |  |        
|                                               |                               | Crude                             |     |      | Medium        |  |    | Heavy    |   |  |         |     | Light |          |       |       |          | Crude |             |          | 
|Reconciliation of Proved Developed             |                               | Oil &                             |     |      | Crude         |  |    | Crude    |   |  | Natural |     |       |          |       | Crude |          |       | Light Crude |          |  | Oil & |          |    | Natural |       |    |   
|Reserves                                       |                               | NGL                               |     |      | Oil           |  |    | Oil      |   |  | Gas     |     |       | Bitumen  |       |       | Oil      |       |             | Oil      |  |       | NGL      |    |         | Gas   |    |    |        
|                                               |                               |                                   |     |      |               |  |    |          |   |  |         |     |       |          |       |       |          |       |             |          |  |       |          |    |         |       |    |    |         | 
|                                               |                               | (mmbbls)                          |     |      | (mmbbls)      |  |    | (mmbbls) |   |  | (bcf)   |     |       | (mmbbls) |       |       | (mmbbls) |       |             | (mmbbls) |  |       | (mmbbls) |    |         | (bcf) |    |    | (mmboe) | 
|                                               |                               | (constant price before royalties) |    
|Proved developed reserves at December 31, 2004 |                               |                                   | 155 |      |               |  | 80 |          |   |  | 91      |     |       |          | 1,745 |       |          |       |            |          |  |       | 16       |    |         |       | 20 |    |         |  | 362 |     |   |  | 1,745 |      |   |  | 653 |     
|                                               | Revision of previous estimate |                                   |     | 7    |               |  |    | 11       |   |  |         | 71  |       |          |       | 77    |          |       |             |         |  |       |          | 27 |         |       |    | 2  |         |  |     | 118 |   |  |       | 77   |   |  |     | 130  |  
|                                               | Purchase of reserves in place |                                   |     |     |               |  |    |         |   |  |         | 2   |       |          |       | 2     |          |       |             |         |  |       |          |   |         |       |    |   |         |  |     | 2   |   |  |       | 2    |   |  |     | 3    |  
|                                               | Sale of reserves in place     |                                   |     | (1   | )             |  |    | (2       | ) |  |         | (3  | )     |          |       | (8    | )        |       |             |         |  |       |          |   |         |       |    |   |         |  |     | (6  | ) |  |       | (8   | ) |  |     | (7   | )
|                                               | Improved recovery             |                                   |     | 2    |               |  |    | 2        |   |  |         | 18  |       |          |       | 142   |          |       |             |         |  |       |          | 22 |         |       |    |   |         |  |     | 44  |   |  |       | 142  |   |  |     | 67   |  
|                                               | Production                    |                                   |     | (12  | )             |  |    | (11      | ) |  |         | (39 | )     |          |       | (248  | )        |       |             |         |  |       |          | (6 | )       |       |    | (6 | )       |  |     | (74 | ) |  |       | (248 | ) |  |     | (115 | )
|                                               |                               |                                   |     |      |               |  |    |          |   |  |         |     |       |          |       |       |          |       |             |          |  |       |          |    |         |       |    |    |         | 
|Proved developed reserves at December 31, 2005 |                               |                                   | 151 |      |               |  | 80 |          |   |  | 140     |     |       |          | 1,710 |       |          |       |            |          |  |       | 59       |    |         |       | 16 |    |         |  | 446 |     |   |  | 1,710 |      |   |  | 731 |     
|                                               |                               |                                   |     |      |               |  |    |          |   |  |         |     |       |          |       |       |          |       |             |          |  |       |          |    |         |       |    |    |         | 

17



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##### Table of Contents



Upstream Capital Expenditures


|                        |                            |                                |       |       |      |   |       |       |     |   |       |     |     | 
|----------------------- | -------------------------- | ------------------------------ | ----- | ----- | ---- | - | ----- | ----- | --- | - | ----- | --- | --- | 
|                        |                            | Year ended December 31         |      
|                        |                            |                                |      
|Capital Expenditures(1) |                            | 2005                           |       |       | 2004 |   |       | 2003  |    
|                        |                            |                                |       |       |      |   |       |       |    
|                        |                            | ($ millions)                   |      
|Upstream                |                            |                                |       |       |      |   |       |       |     |   |       |    
|                        | Exploration                |                                |       |       |      |   |       |       |     |   |       |     |    
|                        |                            | Western Canada                 |       | $     | 389  |   |       | $     | 322 |   |       | $   | 326 | 
|                        |                            | East Coast Canada and Frontier |       |       | 66   |   |       |       | 24  |   |       |     | 24  | 
|                        |                            | International                  |       |       | 55   |   |       |       | 18  |   |       |     | 26  | 
|                        |                            |                                |       |       |      |   |       |       |    
|                        |                            |                                | 510   |       |      |   | 364   |       |     |   | 376   |    
|                        |                            |                                |       |       |      |   |       |       |    
|                        | Development Western Canada |                                |       | 1,618 |      |   |       | 1,211 |     |   |       | 869 |    
|                        |                            | East Coast Canada              |       |       | 579  |   |       |       | 515 |   |       |     | 533 | 
|                        |                            | International                  |       |       | 23   |   |       |       | 67  |   |       |     |    | 
|                        |                            |                                |       |       |      |   |       |       |    
|                        |                            |                                | 2,220 |       |      |   | 1,793 |       |     |   | 1,402 |    
|                        |                            |                                |       |       |      |   |       |       |    
|                        |                            | $                              | 2,730 |       |      | $ | 2,157 |       |     | $ | 1,778 |    
|                        |                            |                                |       |       |      |   |       |       |    






|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes capitalized costs related to asset retirement
    obligations incurred during the period and corporate
    acquisitions.

|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     |  |       |     |  |  |       |     | 
|----------------------- | --- | ---------------------- | ----- | --- | ---- |  | ----- | ----- |  |  | ----- | --- |  | ----- | ----- | --- | --- |  | ----- | --- |  |  | ----- | --- | 
|                        |     | Year ended December 31 |      
|                        |     |                        |      
|                        |     | 2005                   |       |     | 2004 |  |       | 2003  | 
|                        |     |                        |       |     |      |  |       |       | 
|Western Canada Drilling |     | Gross                  |       |     | Net  |  |       | Gross |  |  | Net   |     |  | Gross |       |     | Net | 
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|                        |     | (wells)                |      
|Exploration             |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     |  |       |     |  |  |       |    
|                        | Oil |                        |       | 89  |      |  |       | 85    |  |  |       | 45  |  |       |       | 39  |     |  |       | 12  |  |  |       | 11  | 
|                        | Gas |                        |       | 392 |      |  |       | 196   |  |  |       | 234 |  |       |       | 180 |     |  |       | 147 |  |  |       | 124 | 
|                        | Dry |                        |       | 36  |      |  |       | 36    |  |  |       | 34  |  |       |       | 33  |     |  |       | 22  |  |  |       | 21  | 
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|                        |     |                        | 517   |     |      |  | 317   |       |  |  | 313   |     |  |       | 252   |     |     |  | 181   |     |  |  | 156   |    
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|Development             |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     |  |       |     |  |  |       |    
|                        | Oil |                        |       | 466 |      |  |       | 433   |  |  |       | 552 |  |       |       | 499 |     |  |       | 520 |  |  |       | 490 | 
|                        | Gas |                        |       | 610 |      |  |       | 551   |  |  |       | 807 |  |       |       | 740 |     |  |       | 540 |  |  |       | 518 | 
|                        | Dry |                        |       | 42  |      |  |       | 39    |  |  |       | 57  |  |       |       | 53  |     |  |       | 60  |  |  |       | 57  | 
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|                        |     |                        | 1,118 |     |      |  | 1,023 |       |  |  | 1,416 |     |  |       | 1,292 |     |     |  | 1,120 |     |  |  | 1,065 |    
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 
|Total                   |     |                        | 1,635 |     |      |  | 1,340 |       |  |  | 1,729 |     |  |       | 1,544 |     |     |  | 1,301 |     |  |  | 1,221 |    
|                        |     |                        |       |     |      |  |       |       |  |  |       |     |  |       |       |     |     | 

Canada






in-situ




18



---



##### Table of Contents





on-schedule




International


front-end





MIDSTREAM




|         |          
|-------- | ---------
|Upgrader | Pipelines




19



---



##### Table of Contents



Upgrading Earnings Summary and 2005 Variance
Analysis


|                                       |  |                        |       |   |      |   |       |      |  |   |       |  
|-------------------------------------- |  | ---------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                       |  | Year ended December 31 |      
|                                       |  |                        |      
|Upgrading Earnings Summary             |  | 2005                   |       |   | 2004 |   |       | 2003 | 
|                                       |  |                        |       |   |      |   |       |      | 
|                                       |  | ($ millions, except    |      
|                                       |  | where indicated)       |      
|Gross margin                           |  | $                      | 692   |   |      | $ | 383   |      |  | $ | 313   |  
|Operating costs                        |  |                        | 228   |   |      |   | 214   |      |  |   | 205   |  
|Other recoveries                       |  |                        | (6    | ) |      |   | (5    | )    |  |   | (4    | )
|Depreciation and amortization          |  |                        | 21    |   |      |   | 19    |      |  |   | 20    |  
|Income taxes                           |  |                        | 136   |   |      |   | 43    |      |  |   | 21    |  
|                                       |  |                        |       |   |      |   |       |      | 
|Earnings                               |  | $                      | 313   |   |      | $ | 112   |      |  | $ | 71    |  
|                                       |  |                        |       |   |      |   |       |      | 
|Upgrader
    throughput(1) (mbbls/day) |  |                        | 66.6  |   |      |   | 64.6  |      |  |   | 72.5  |  
|Synthetic crude oil sales (mbbls/day)  |  |                        | 57.5  |   |      |   | 53.7  |      |  |   | 63.6  |  
|Upgrading differential ($/bbl)         |  | $                      | 30.70 |   |      | $ | 17.79 |      |  | $ | 12.88 |  
|Unit margin ($/bbl)                    |  | $                      | 33.01 |   |      | $ | 19.48 |      |  | $ | 13.51 |  
|Unit operating
    cost(2) ($/bbl)     |  | $                      | 9.38  |   |      | $ | 9.07  |      |  | $ | 7.77  |  
|                                       |  |                        |       |   |      |   |       |      | 












| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | wider upgrading differential, which averaged $30.70/bbl in 2005
    compared with $17.79/bbl in 2004; and             
|
| |  | higher sales volume of synthetic crude oil. The upgrader was
    down in both 2005 and 2004 for scheduled maintenance.





| |   |                                                           
| | - | ----------------------------------------------------------
| |  | higher energy and non-energy related unit operating costs.

|                                     |                                      |              |     |     |  
|------------------------------------ | ------------------------------------ | ------------ | --- | --- | -
|Upgrading Earnings Variance Analysis |                                      |             
|                                     |                                      | ($ millions) |    
|Year ended December 31, 2003         |                                      | $            | 71  |    
|                                     | Volume                               |              |     | (48 | )
|                                     | Differential                         |              |     | 118 |  
|                                     | Operating costs  non-energy related |              |     | (9  | )
|                                     | Other                                |              |     | 1   |  
|                                     | Depreciation and amortization        |              |     | 1   |  
|                                     | Income taxes                         |              |     | (22 | )
|                                     |                                      |              |    
|Year ended December 31, 2004         |                                      |              | 112 |    
|                                     | Volume                               |              |     | 25  |  
|                                     | Differential                         |              |     | 284 |  
|                                     | Operating costs  energy related     |              |     | (18 | )
|                                     | Operating costs  non-energy related |              |     | 5   |  
|                                     | Depreciation and amortization        |              |     | (2  | )
|                                     | Income taxes                         |              |     | (93 | )
|                                     |                                      |              |    
|Year ended December 31, 2005         |                                      | $            | 313 |    
|                                     |                                      |              |    

Upgrading Differential




20



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##### Table of Contents





Infrastructure and Marketing Earnings Summary and 2005
Variance Analysis


|                                              |                                    |                           |     |     |      |   |     |      |  |   |     |     | 
|--------------------------------------------- | ---------------------------------- | ------------------------- | --- | --- | ---- | - | --- | ---- |  | - | --- | --- | 
|                                              |                                    | Year ended December 31    |    
|                                              |                                    |                           |    
|Infrastructure and Marketing Earnings Summary |                                    | 2005                      |     |     | 2004 |   |     | 2003 | 
|                                              |                                    |                           |     |     |      |   |     |      | 
|                                              |                                    | ($ millions, except where |    
|                                              |                                    | indicated)                |    
|Gross margin                                  |                                    |                           |     |     |      |   |     |      |  |   |     |    
|                                              | Pipeline                           |                           | $   | 92  |      |   | $   | 84   |  |   | $   | 66  | 
|                                              | Other infrastructure and marketing |                           |     | 217 |      |   |     | 136  |  |   |     | 141 | 
|                                              |                                    |                           |     |     |      |   |     |      | 
|                                              |                                    |                           | 309 |     |      |   | 220 |      |  |   | 207 |    
|Other expenses                                |                                    |                           | 10  |     |      |   | 8   |      |  |   | 8   |    
|Depreciation and amortization                 |                                    |                           | 21  |     |      |   | 21  |      |  |   | 21  |    
|Income taxes                                  |                                    |                           | 96  |     |      |   | 63  |      |  |   | 64  |    
|                                              |                                    |                           |     |     |      |   |     |      | 
|Earnings                                      |                                    | $                         | 182 |     |      | $ | 128 |      |  | $ | 114 |    
|                                              |                                    |                           |     |     |      |   |     |      | 
|Aggregate pipeline throughput (mbbls/day)     |                                    |                           | 474 |     |      |   | 492 |      |  |   | 484 |    
|                                              |                                    |                           |     |     |      |   |     |      | 





| |   |                                                    
| | - | ---------------------------------------------------
| |  | higher income from oil and gas commodity marketing;
|
| |  | higher heavy crude oil tariffs;                    
|
| |  | higher Lloyd blend marketing margins;              
|
| |  | higher crude oil and NGL trading; and              
|
| |  | higher cogeneration income.                        





| |   |                                                             
| | - | ------------------------------------------------------------
| |  | lower heavy crude oil pipeline throughput; and              
|
| |  | higher operating costs due primarily to higher energy costs.

Midstream Capital Expenditures




21



---



##### Table of Contents






REFINED PRODUCTS




|                            |                 
|--------------------------- | ----------------
|Light Oil Product Marketing | Asphalt Products




Earnings Summary and Variance Analysis


|                                  |                                                          |                           |     |      |      |   |     |      |  |   |     |      | 
|--------------------------------- | -------------------------------------------------------- | ------------------------- | --- | ---- | ---- | - | --- | ---- |  | - | --- | ---- | 
|                                  |                                                          | Year ended December 31    |    
|                                  |                                                          |                           |    
|Refined Products Earnings Summary |                                                          | 2005                      |     |      | 2004 |   |     | 2003 | 
|                                  |                                                          |                           |     |      |      |   |     |      | 
|                                  |                                                          | ($ millions, except where |    
|                                  |                                                          | indicated)                |    
|Gross margin                      |                                                          |                           |     |      |      |   |     |      |  |   |     |     
|                                  | Fuel sales                                               |                           | $   | 126  |      |   | $   | 93   |  |   | $   | 71   | 
|                                  | Ancillary sales                                          |                           |     | 34   |      |   |     | 30   |  |   |     | 28   | 
|                                  | Asphalt sales                                            |                           |     | 91   |      |   |     | 51   |  |   |     | 51   | 
|                                  |                                                          |                           |     |      |      |   |     |      | 
|                                  |                                                          |                           | 251 |      |      |   | 174 |      |  |   | 150 |     
|Operating and other expenses      |                                                          |                           | 75  |      |      |   | 71  |      |  |   | 74  |     
|Depreciation and amortization     |                                                          |                           | 47  |      |      |   | 38  |      |  |   | 26  |     
|Income taxes                      |                                                          |                           | 47  |      |      |   | 24  |      |  |   | 18  |     
|                                  |                                                          |                           |     |      |      |   |     |      | 
|Earnings                          |                                                          | $                         | 82  |      |      | $ | 41  |      |  | $ | 32  |     
|                                  |                                                          |                           |     |      |      |   |     |      | 
|Number of fuel outlets            |                                                          |                           | 515 |      |      |   | 531 |      |  |   | 552 |     
|Refined products sales volume     |                                                          |                           |     |      |      |   |     |      |  |   |     |     
|                                  | Light oil products  (million litres/day)                 |                           |     | 8.9  |      |   |     | 8.4  |  |   |     | 8.2  | 
|                                  | Light oil products per outlet  (thousand
    litres/day) |                           |     | 12.7 |      |   |     | 11.7 |  |   |     | 10.8 | 
|                                  | Asphalt products  (mbbls/day)                            |                           |     | 22.5 |      |   |     | 22.8 |  |   |     | 22.0 | 
|Refinery throughput               |                                                          |                           |     |      |      |   |     |      |  |   |     |     
|                                  | Prince George refinery  (mbbls/day)                      |                           |     | 9.7  |      |   |     | 9.8  |  |   |     | 10.3 | 
|                                  | Lloydminster refinery  (mbbls/day)                       |                           |     | 25.5 |      |   |     | 25.3 |  |   |     | 25.7 | 





| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | higher marketing margins and sales volume for gasoline and
    distillates;
|
| |  | higher marketing margins of asphalt products; and                          
|
| |  | higher restaurant and convenience store income.                            





| |   |                                                     
| | - | ----------------------------------------------------
| |  | slightly lower sales volume of asphalt products; and
|
| |  | higher depreciation and amortization.               

Refined
Products Margins




22



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##### Table of Contents





Integration




Refined Products Capital Expenditures







CORPORATE


|                                |  |                        |      |   |      |   |      |      |  |   |      |  
|------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                |  | Year ended December 31 |     
|                                |  |                        |     
|Corporate Earnings Summary(1)   |  | 2005                   |      |   | 2004 |   |      | 2003 | 
|                                |  |                        |      |   |      |   |      |      | 
|                                |  | ($ millions) income    |     
|                                |  | (expenses)             |     
|Intersegment eliminations  net |  | $                      | (50  | ) |      | $ | (14  | )    |  | $ | 14   |  
|Administration expenses         |  |                        | (19  | ) |      |   | (27  | )    |  |   | (22  | )
|Stock-based compensation        |  |                        | (171 | ) |      |   | (67  | )    |  |   |     |  
|Accretion                       |  |                        | (2   | ) |      |   | (2   | )    |  |   |     |  
|Other  net                     |  |                        | 49   |   |      |   | (8   | )    |  |   | (3   | )
|Depreciation and amortization   |  |                        | (23  | ) |      |   | (24  | )    |  |   | (36  | )
|Interest on debt                |  |                        | (146 | ) |      |   | (135 | )    |  |   | (154 | )
|Interest capitalized            |  |                        | 114  |   |      |   | 75   |      |  |   | 52   |  
|Foreign exchange                |  |                        | 31   |   |      |   | 120  |      |  |   | 282  |  
|Income taxes                    |  |                        | 119  |   |      |   | 94   |      |  |   | (47  | )
|                                |  |                        |      |   |      |   |      |      | 
|Earnings (loss)                 |  | $                      | (98  | ) |      | $ | 12   |      |  | $ | 86   |  
|                                |  |                        |      |   |      |   |      |      | 










| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | higher intersegment profit eliminated;                                                                        
|
| |  | higher stock-based compensation;                                                                              
|
| |  | higher interest costs;                                                                                        
|
| |  | lower foreign exchange gains on translation of U.S. dollar
    denominated debt; and                          
|
| |  | provision for retrospective insurance premiums in respect of
    past claims on a mutual insurance consortium.





| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | proceeds from a litigation settlement; and                                                                  
|
| |  | higher capitalized interest resulting from a higher capital base
    for the White Rose and Tucker projects.

23



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##### Table of Contents



|                                                                         |                      |                        |        |       |      |   |        |       |   |   |        |       |  
|------------------------------------------------------------------------ | -------------------- | ---------------------- | ------ | ----- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                         |                      | Year ended December 31 |       
|Foreign Exchange Summary(1)                                              |                      | 2005                   |        |       | 2004 |   |        | 2003  |  
|                                                                         |                      |                        |        |       |      |   |        |       |  
|                                                                         |                      | ($ millions)           |       
|(Gain) loss on translation of U.S. dollar denominated long-term
    debt |                      |                        |        |       |      |   |        |       |   |   |        |      
|                                                                         | Realized             |                        | $      | (13   | )    |   | $      | (10   | ) |   | $      | 11    |  
|                                                                         | Unrealized           |                        |        | (38   | )    |   |        | (140  | ) |   |        | (393  | )
|                                                                         |                      |                        |        |       |      |   |        |       |  
|                                                                         |                      |                        | (51    | )     |      |   | (150   | )     |   |   | (382   | )    
|                                                                         |                      |                        |        |       |      |   |        |       |  
|Cross currency swaps                                                     |                      |                        |        |       |      |   |        |       |   |   |        |      
|                                                                         | Realized             |                        |        |      |      |   |        |      |   |   |        | 32    |  
|                                                                         | Unrealized           |                        |        | 14    |      |   |        | 27    |   |   |        | 41    |  
|                                                                         |                      |                        |        |       |      |   |        |       |  
|                                                                         |                      |                        | 14     |       |      |   | 27     |       |   |   | 73     |      
|                                                                         |                      |                        |        |       |      |   |        |       |  
|Other losses                                                             |                      |                        | 6      |       |      |   | 3      |       |   |   | 27     |      
|                                                                         |                      |                        |        |       |      |   |        |       |  
|                                                                         |                      | $                      | (31    | )     |      | $ | (120   | )     |   | $ | (282   | )    
|                                                                         |                      |                        |        |       |      |   |        |       |  
|U.S./ Canadian dollar exchange rates:                                    |                      |                        |        |       |      |   |        |       |   |   |        |      
|                                                                         | At beginning of year |                        | U.S. $ | 0.831 |      |   | U.S. $ | 0.774 |   |   | U.S. $ | 0.633 |  
|                                                                         | At end of year       |                        | U.S. $ | 0.858 |      |   | U.S. $ | 0.831 |   |   | U.S. $ | 0.774 |  






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | 2004 and 2003 amounts as restated. Refer to Notes 3 and 11
    to the Consolidated Financial Statements.

Foreign Exchange Risk




Consolidated Income Taxes










|                                               |  |              |     |  |      |   |     | 
|---------------------------------------------- |  | ------------ | --- |  | ---- | - | --- | 
|                                               |  | 2005         |     |  | 2004 |  
|                                               |  |              |     |  |      |  
|                                               |  | ($ millions) |    
|Income taxes before tax amendments             |  | $            | 813 |  |      | $ | 439 | 
|Canadian federal and provincial tax amendments |  |              | 4   |  |      |   | 40  | 
|                                               |  |              |     |  |      |  
|Income taxes as reported                       |  | $            | 809 |  |      | $ | 399 | 
|                                               |  |              |     |  |      |  

24



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##### Table of Contents



|                                            |  |              |       |  |      |   |       | 
|------------------------------------------- |  | ------------ | ----- |  | ---- | - | ----- | 
|                                            |  | Year ended   |      
|                                            |  | December 31  |      
|                                            |  |              |      
|Huskys Canadian Tax Pools                  |  | 2005         |       |  | 2004 |  
|                                            |  |              |       |  |      |  
|                                            |  | ($ millions) |      
|Canadian exploration expense                |  | $            | 78    |  |      | $ |      | 
|Canadian development expense                |  |              | 2,033 |  |      |   | 1,616 | 
|Canadian oil and gas property expense       |  |              | 721   |  |      |   | 557   | 
|Foreign exploration and development expense |  |              | 240   |  |      |   | 212   | 
|Undepreciated capital costs                 |  |              | 4,249 |  |      |   | 3,269 | 
|Other                                       |  |              | 27    |  |      |   | 22    | 
|                                            |  |              |       |  |      |  
|                                            |  | $            | 7,348 |  |      | $ | 5,676 | 
|                                            |  |              |       |  |      |  

Corporate Capital Expenditures







4.    LIQUIDITY AND CAPITAL RESOURCES





SUMMARY OF CASH FLOW


|                                                  |                                     |                        |       |        |      |   |       |        |   |   |       |        |  
|------------------------------------------------- | ----------------------------------- | ---------------------- | ----- | ------ | ---- | - | ----- | ------ | - | - | ----- | ------ | -
|                                                  |                                     | Year ended December 31 |      
|                                                  |                                     |                        |      
|                                                  |                                     | 2005                   |       |        | 2004 |   |       | 2003   |  
|                                                  |                                     |                        |       |        |      |   |       |        |  
|Cash flow  operating
    activities ($ millions) |                                     | $                      | 3,672 |        |      | $ | 2,326 |        |   | $ | 2,509 |       
|                                                  |  financing activities ($ millions) |                        | $     | (616   | )    |   | $     | 175    |   |   | $     | (771   | )
|                                                  |  investing activities ($ millions) |                        | $     | (2,814 | )    |   | $     | (2,497 | ) |   | $     | (2,041 | )
|Debt to capital employed (percent)                |                                     |                        | 20.1  |        |      |   | 25.8  |        |   |   | 26.9  |       
|Corporate reinvestment
    ratio(1)               |                                     |                        | 0.8   |        |      |   | 1.1   |        |   |   | 0.9   |       
|                                                  |                                     |                        |       |        |      |   |       |        |  






Cash Flow from Operating Activities


non-cash


Cash Flow from (used for) Financing Activities


long-term non-cash




Cash Flow used for Investing Activities


non-cash


25



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##### Table of Contents






FINANCIAL POSITION


Sources and Uses of Cash






|                                                 |                                                     |              |       |       |      |   |       |       |  |   |       |       | 
|------------------------------------------------ | --------------------------------------------------- | ------------ | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|Sources and Uses of Cash                         |                                                     | 2005         |       |       | 2004 |   |       | 2003  | 
|                                                 |                                                     |              |       |       |      |   |       |       | 
|                                                 |                                                     | ($ millions) |      
|Cash sourced                                     |                                                     |              |       |       |      |   |       |       |  |   |       |      
|                                                 | Cash flow from
    operations(1)                    |              | $     | 3,785 |      |   | $     | 2,197 |  |   | $     | 2,430 | 
|                                                 | Debt issue                                          |              |       | 3,235 |      |   |       | 2,200 |  |   |       | 669   | 
|                                                 | Asset sales                                         |              |       | 74    |      |   |       | 36    |  |   |       | 511   | 
|                                                 | Proceeds from exercise of stock options             |              |       | 6     |      |   |       | 18    |  |   |       | 51    | 
|                                                 | Proceeds from monetization of financial instruments |              |       | 39    |      |   |       | 8     |  |   |       | 44    | 
|                                                 | Other                                               |              |       |      |      |   |       |      |  |   |       | 5     | 
|                                                 |                                                     |              |       |       |      |   |       |       | 
|                                                 |                                                     |              | 7,139 |       |      |   | 4,459 |       |  |   | 3,710 |      
|                                                 |                                                     |              |       |       |      |   |       |       | 
|Cash used                                        |                                                     |              |       |       |      |   |       |       |  |   |       |      
|                                                 | Capital expenditures                                |              |       | 3,068 |      |   |       | 2,349 |  |   |       | 1,868 | 
|                                                 | Corporate acquisitions                              |              |       |      |      |   |       | 102   |  |   |       | 809   | 
|                                                 | Debt repayment                                      |              |       | 3,450 |      |   |       | 1,959 |  |   |       | 971   | 
|                                                 | Special dividend on common shares                   |              |       | 424   |      |   |       | 229   |  |   |       | 420   | 
|                                                 | Ordinary dividends on common shares                 |              |       | 276   |      |   |       | 195   |  |   |       | 160   | 
|                                                 | Settlement of asset retirement obligations          |              |       | 41    |      |   |       | 40    |  |   |       | 34    | 
|                                                 | Settlement of cross currency swap                   |              |       |      |      |   |       |      |  |   |       | 32    | 
|                                                 | Other                                               |              |       | 32    |      |   |       | 24    |  |   |       |      | 
|                                                 |                                                     |              |       |       |      |   |       |       | 
|                                                 |                                                     |              | 7,291 |       |      |   | 4,898 |       |  |   | 4,294 |      
|                                                 |                                                     |              |       |       |      |   |       |       | 
|Net cash (deficiency)                            |                                                     |              | (152  | )     |      |   | (439  | )     |  |   | (584  | )    
|Increase (decrease) in non-cash working capital  |                                                     |              | 394   |       |      |   | 443   |       |  |   | 281   |      
|                                                 |                                                     |              |       |       |      |   |       |       | 
|Increase (decrease) in cash and cash equivalents |                                                     |              | 242   |       |      |   | 4     |       |  |   | (303  | )    
|Cash and cash equivalents  beginning of year    |                                                     |              | 7     |       |      |   | 3     |       |  |   | 306   |      
|                                                 |                                                     |              |       |       |      |   |       |       | 
|Cash and cash equivalents  end of year          |                                                     | $            | 249   |       |      | $ | 7     |       |  | $ | 3     |      
|                                                 |                                                     |              |       |       |      |   |       |       | 






|    |                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Cash flow from operations represents net earnings plus items not
    affecting cash, which include accretion, depletion, depreciation
    and amortization, future income taxes and foreign exchange.

26



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##### Table of Contents



Sources and Uses of Cash (continued)


|                                                |                                      |                                                   |       |   |      |   |     |      |     |   |     |   |     | 
|----------------------------------------------- | ------------------------------------ | ------------------------------------------------- | ----- | - | ---- | - | --- | ---- | --- | - | --- | - | --- | 
|                                                |                                      | 2005                                              |       |   | 2004 |   |     | 2003 |    
|                                                |                                      |                                                   |       |   |      |   |     |      |    
|                                                |                                      | ($ millions)                                      |      
|Increase (decrease) in non-cash working capital |                                      |                                                   |       |   |      |   |     |      |     |   |     |  
|                                                | Cash positive working capital change |                                                   |       |   |      |   |     |      |     |   |     |   |    
|                                                |                                      | Accounts receivable decrease                      |       | $ |     |   |     | $    | 209 |   |     | $ |    | 
|                                                |                                      | Inventory decrease                                |       |   |     |   |     |      |    |   |     |   | 28  | 
|                                                |                                      | Prepaid expense decrease                          |       |   | 17   |   |     |      |    |   |     |   |    | 
|                                                |                                      | Accounts payable and accrued liabilities increase |       |   | 984  |   |     |      | 323 |   |     |   | 270 | 
|                                                |                                      |                                                   |       |   |      |   |     |      |    
|                                                |                                      |                                                   | 1,001 |   |      |   | 532 |      |     |   | 298 |  
|                                                | Cash negative working capital change |                                                   |       |   |      |   |     |      |     |   |     |   |    
|                                                |                                      | Accounts receivable increase                      |       |   | 410  |   |     |      |    |   |     |   | 7   | 
|                                                |                                      | Inventory increase                                |       |   | 197  |   |     |      | 77  |   |     |   |    | 
|                                                |                                      | Prepaid expense increase                          |       |   |     |   |     |      | 12  |   |     |   | 10  | 
|                                                |                                      |                                                   |       |   |      |   |     |      |    
|                                                |                                      |                                                   | 607   |   |      |   | 89  |      |     |   | 17  |  
|                                                |                                      |                                                   |       |   |      |   |     |      |    
|Increase (decrease) in non-cash working capital |                                      | $                                                 | 394   |   |      | $ | 443 |      |     | $ | 281 |  
|                                                |                                      |                                                   |       |   |      |   |     |      |    

Capital Structure


|                                    |                            |                   |       |       |           |   |       |         |  |   |       |       | 
|----------------------------------- | -------------------------- | ----------------- | ----- | ----- | --------- | - | ----- | ------- |  | - | ----- | ----- | 
|                                    |                            | December 31, 2005 |      
|                                    |                            |                   |      
|                                    |                            | Outstanding       |       |       | Available |  
|                                    |                            |                   |       |       |           |  
|                                    |                            | (U.S. $)          |       |       | (Cdn $)   |   |       | (Cdn $) | 
|                                    |                            | ($ millions)      |      
|Short-term bank debt                |                            | $                 |      |       |           | $ |      |         |  | $ | 177   |      
|Long-term bank debt                 |                            |                   |       |       |           |   |       |         |  |   |       |      
|                                    | Syndicated credit facility |                   |       |      |           |   |       |        |  |   |       | 1,000 | 
|                                    | Bilateral credit facility  |                   |       |      |           |   |       |        |  |   |       | 150   | 
|                                    | Medium-term notes          |                   |       |      |           |   |       | 300     |  |   |       |       | 
|                                    | Capital securities         |                   |       | 225   |           |   |       | 262     |  |   |       |       | 
|                                    | U.S. public notes          |                   |       | 1,050 |           |   |       | 1,225   |  |   |       |       | 
|                                    | U.S. senior secured bonds  |                   |       | 85    |           |   |       | 99      |  |   |       |       | 
|                                    |                            |                   |       |       |           |   |       |         | 
|Total short-term and long-term debt |                            | $                 | 1,360 |       |           | $ | 1,886 |         |  | $ | 1,327 |      
|                                    |                            |                   |       |       |           |   |       |         | 
|Common shares and retained earnings |                            |                   |       |       |           | $ | 7,520 |         |  |   |       |      
|                                    |                            |                   |       |       |           |   |       |         | 









27



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##### Table of Contents















Credit Ratings







CASH REQUIREMENTS


Contractual Obligations and Other Commercial
Commitments




Contractual Obligations


|                                              |  |                        |       |  |      |   |       |           |  |   |           |  |  |            |     |  |  |   |       | 
|--------------------------------------------- |  | ---------------------- | ----- |  | ---- | - | ----- | --------- |  | - | --------- |  |  | ---------- | --- |  |  | - | ----- | 
|                                              |  | Payments due by period |      
|                                              |  |                        |      
|                                              |  | Total                  |       |  | 2006 |   |       | 2007-2008 |  |   | 2009-2010 |  |  | Thereafter |    
|                                              |  |                        |       |  |      |   |       |           |  |   |           |  |  |            |    
|                                              |  | ($ millions)           |      
|Long-term debt and
    interest(1)            |  | $                      | 2,700 |  |      | $ | 403   |           |  | $ | 565       |  |  | $          | 350 |  |  | $ | 1,382 | 
|Operating leases                              |  |                        | 502   |  |      |   | 81    |           |  |   | 158       |  |  |            | 131 |  |  |   | 132   | 
|Firm transportation agreements                |  |                        | 679   |  |      |   | 169   |           |  |   | 243       |  |  |            | 118 |  |  |   | 149   | 
|Unconditional purchase
    obligations(2)     |  |                        | 2,017 |  |      |   | 616   |           |  |   | 1,221     |  |  |            | 171 |  |  |   | 9     | 
|Lease rentals and exploration work agreements |  |                        | 427   |  |      |   | 50    |           |  |   | 98        |  |  |            | 125 |  |  |   | 154   | 
|Engineering and construction commitments      |  |                        | 531   |  |      |   | 365   |           |  |   | 166       |  |  |            |    |  |  |   |      | 
|                                              |  |                        |       |  |      |   |       |           |  |   |           |  |  |            |    
|                                              |  | $                      | 6,856 |  |      | $ | 1,684 |           |  | $ | 2,451     |  |  | $          | 895 |  |  | $ | 1,826 | 
|                                              |  |                        |       |  |      |   |       |           |  |   |           |  |  |            |    






|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes interest on fixed rate debt.                                                                                                             
|   
|(2) | Includes purchase of refined petroleum products, processing
    services, distribution services, insurance premiums and natural
    gas purchases.

Estimated
Obligations Not Included in the Table




| |   |                             
| | - | ----------------------------
| |  | Asset retirement obligations



| |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Husky currently includes such obligations in the amortizing
    base of its oil and gas properties. Effective January 1,
    2004 with the adoption of the Canadian Institute of Chartered
    Accountants (CICA) section 3110, Asset
    Retirement Obligations, Husky records a separate liability
    for the fair value of its asset retirement obligations. See
    Note 12 to the Consolidated Financial Statements.

28



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##### Table of Contents





| |   |                         
| | - | ------------------------
| |  | Employee future benefits



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Husky has a defined contribution pension plan and a
    post-retirement health and dental care plan for its employees.
    In addition Husky has a defined benefit pension plan for
    approximately 200 active employees and 460 retirees and
    beneficiaries. In 1991 admittance to the defined benefit pension
    plan ended after the majority of members transferred to the
    newly created defined contribution pension plan. See
    Note 16 to the Consolidated Financial Statements.

Other
Obligations




2006
Capital Program




|                 |                   |                   |       |       | 
|---------------- | ----------------- | ----------------- | ----- | ----- | 
|                 |                   | Year ended        |      
|                 |                   | December 31, 2006 |      
|                 |                   |                   |      
|                 |                   | Estimate          |      
|                 |                   |                   |      
|                 |                   | ($ millions)      |      
|Upstream         |                   |                   |       |      
|                 | Western Canada    |                   | $     | 1,730 | 
|                 | East Coast Canada |                   |       | 350   | 
|                 | International     |                   |       | 140   | 
|                 |                   |                   |      
|                 |                   |                   | 2,220 |      
|Midstream        |                   |                   | 340   |      
|Refined Products |                   |                   | 260   |      
|Corporate        |                   |                   | 30    |      
|                 |                   |                   |      
|                 |                   | $                 | 2,850 |      
|                 |                   |                   |      




OFF-BALANCE SHEET ARRANGEMENTS




Accounts Receivable Securitization Program






Standby Letters of Credit




Derivative Instruments







TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS




29



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##### Table of Contents










FINANCIAL RISK AND RISK MANAGEMENT




Commodity Price Risk Management






Natural
Gas




Power
Consumption




Foreign Currency Risk Management






| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | U.S. $150 million at 7.125 percent swapped at $1.45 to
    $218 million at 8.74 percent until November 15,
    2006.
|
| |  | U.S. $150 million at 6.250 percent swapped at $1.41 to
    $212 million at 7.41 percent until June 15, 2012.        
|
| |  | U.S. $75 million at 6.250 percent swapped at $1.19 to
    $90 million at 5.65 percent until June 15, 2012.          
|
| |  | U.S. $50 million at 6.250 percent swapped at $1.17 to
    $59 million at 5.67 percent until June 15, 2012.          
|
| |  | U.S. $75 million at 6.250 percent swapped at $1.17 to
    $88 million at 5.61 percent until June 15, 2012.          







Interest Rate Risk Management










30



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OUTSTANDING SHARE DATA






| |   |                                     
| | - | ------------------------------------
| |  | unlimited number of common shares   
|
| |  | unlimited number of preferred shares





| |   |                                     
| | - | ------------------------------------
| |  | common shares  424,147,746          
|
| |  | preferred shares  none              
|
| |  | stock options  7,200,457            
|
| |  | stock options exercisable  1,193,153






5.    2006 OUTLOOK





GENERAL ECONOMY









UPSTREAM


|                                            |  |      |           |  |             |  |     | 
|------------------------------------------- |  | ---- | --------- |  | ----------- |  | --- | 
|Production Outlook                          |  | 2006 |           |  | 2005 Actual | 
|                                            |  |      |           |  |             | 
|Light crude oil and NGL  (mbbls/day)        |  |      | 103 - 116 |  |             |  | 65  | 
|Medium crude oil  (mbbls/day)               |  |      | 29 - 32   |  |             |  | 31  | 
|Heavy crude oil  (mbbls/day)                |  |      | 115 - 120 |  |             |  | 106 | 
|                                            |  |      |           |  |             | 
|Total crude oil and NGL  (mbbls/day)        |  |      | 247 - 268 |  |             |  | 202 | 
|Natural gas  (mmcf/day)                     |  |      | 680 - 730 |  |             |  | 680 | 
|Barrels of oil equivalent (6:1)  (mboe/day) |  |      | 360 - 390 |  |             |  | 315 | 

Western Canada Conventional






31



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Oil Sands




|        |  |      |                 |  |        |  |         |          |  |  |                  | 
|------- |  | ---- | --------------- |  | ------ |  | ------- | -------- |  |  | ---------------- | 
|        |  | Cost |                 |  | Timing |  |         | Capacity | 
|        |  |      |                 |  |        |  |         |          | 
|Tucker  |  | $    | 500 million     |  |        |  | 2006    |          |  |  | 30,000 bbls/day  | 
|Sunrise |  |      | To be finalized |  |        |  | 2010-12 |          |  |  | 200,000 bbls/day | 

Canada  East Coast and Northwest
Territories






China and Indonesia









MIDSTREAM







REFINED PRODUCTS







6.    APPLICATION OF CRITICAL ACCOUNTING
ESTIMATES




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rule-making





FULL COST ACCOUNTING FOR OIL AND GAS ACTIVITIES








| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | estimated costs to develop the proved undeveloped reserves;                                           
|
| |  | estimated fair value of the asset retirement obligation related
    to the oil and gas properties; and
|
| |  | estimated impairment of costs excluded from the DD&A
    calculation.                                 





| |   |                                                              
| | - | -------------------------------------------------------------
| |  | previously estimated proved oil and gas reserves; and        
|
| |  | estimated proved reserves added compared to capital invested.




DEPLETION EXPENSE







WITHHELD COSTS







FULL COST ACCOUNTING







IMPAIRMENT OF
LONG-LIVED ASSETS


long-lived long-lived





FAIR VALUE OF DERIVATIVE INSTRUMENTS




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(AcG-13). AcG-13









ASSET RETIREMENT OBLIGATIONS




sub-sea


long-lived


third-party





LEGAL, ENVIRONMENTAL REMEDIATION AND OTHER CONTINGENT
MATTERS







INCOME TAX ACCOUNTING




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BUSINESS COMBINATIONS







GOODWILL







7.    NEW ACCOUNTING STANDARDS





LIABILITIES AND EQUITY







NON-MONETARY


Non-monetary non-monetary non-monetary





8.    PENDING ACCOUNTING STANDARDS






| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | Section 1530, Comprehensive Income;                                       
|
| |  | Section 3855, Financial Instruments  Recognition
    and Measurement; and
|
| |  | Section 3865, Hedges.                                                     



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9.      SUMMARY OF VARIANCES
FOR 2004 COMPARED WITH 2003




Upstream 




| |   |                                 
| | - | --------------------------------
| |  | hedging losses;                 
|
| |  | higher operating costs and DD&A;
|
| |  | higher royalties; and           
|
| |  | higher income taxes.            





| |   |                                                        
| | - | -------------------------------------------------------
| |  | higher crude oil and natural gas prices; and           
|
| |  | higher sales volume of heavy crude oil and natural gas.

Midstream 




| |   |                                                        
| | - | -------------------------------------------------------
| |  | wider upgrading differential;                          
|
| |  | higher heavy crude oil pipeline throughput and tariffs;
|
| |  | higher crude oil and NGL trading; and                  
|
| |  | higher income taxes.                                   





| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | lower upgrader throughput and sales volume;                              
|
| |  | higher unit operating costs, which were primarily energy
    related; and
|
| |  | lower cogeneration income.                                               

Refined Products 




| |   |                                                
| | - | -----------------------------------------------
| |  | higher light oil product margins; and          
|
| |  | higher restaurant and convenience store income.





| |   |                                          
| | - | -----------------------------------------
| |  | higher depreciation and amortization; and
|
| |  | higher income taxes.                     

Corporate 




| |   |                                                          
| | - | ---------------------------------------------------------
| |  | lower foreign exchange gains;                            
|
| |  | stock-based
    compensation first recorded in June 2004;
|
| |  | higher intersegment profit eliminated; and               
|
| |  | higher administration expenses.                          

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| |   |                                                                                                 
| | - | ------------------------------------------------------------------------------------------------
| |  | lower depreciation and amortization;                                                            
|
| |  | lower interest expense resulting from lower rates; and                                          
|
| |  | higher capitalized interest resulting from a higher capital base
    for the White Rose project.




10.   FORWARD-LOOKING
STATEMENTS


forward-looking forward-looking forward-looking forward-looking






| |   |                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fluctuations in commodity prices;                                                                                                                                                                                                                                                 
|
| |  | the accuracy of our oil and gas reserve estimates and estimated
    production levels as they are affected by our success at
    exploration and development drilling and related activities and
    estimated decline rates;                                                     
|
| |  | the uncertainties resulting from potential delays or changes in
    plans with respect to exploration or development projects or
    capital expenditures;                                                                                                                        
|
| |  | changes in general economic, market and business conditions;                                                                                                                                                                                                                      
|
| |  | fluctuations in supply and demand for our products;                                                                                                                                                                                                                               
|
| |  | fluctuations in the cost of borrowing;                                                                                                                                                                                                                                            
|
| |  | our use of derivative financial instruments to hedge exposure to
    changes in commodity prices and fluctuations in interest rates
    and foreign currency exchange rates;                                                                                                      
|
| |  | political and economic developments, expropriations, royalty and
    tax increases, retroactive tax claims and changes to import and
    export regulations and other foreign laws and policies in the
    countries in which we operate;                                         
|
| |  | our ability to receive timely regulatory approvals;                                                                                                                                                                                                                               
|
| |  | the integrity and reliability of our capital assets;                                                                                                                                                                                                                              
|
| |  | the cumulative impact of other resource development projects;                                                                                                                                                                                                                     
|
| |  | the maintenance of satisfactory relationships with unions,
    employee associations and joint venturers;                                                                                                                                                                         
|
| |  | competitive actions of other companies, including increased
    competition from other oil and gas companies or from companies
    that provide alternate sources of energy;                                                                                                      
|
| |  | actions by governmental authorities, including changes in
    environmental and other regulations that may impose restriction
    in areas where we operate;                                                                                                                      
|
| |  | the ability and willingness of parties with whom we have
    material relationships to fulfill their obligations; and                                                                                                                                                             
|
| |  | the occurrence of unexpected events such as fires, blowouts,
    freeze-ups, equipment failures and other similar events
    affecting us or other parties whose operations or assets
    directly or indirectly affect us and that may or may not be
    financially recoverable.

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11.   OIL AND GAS RESERVE REPORTING


DISCLOSURE OF PROVED OIL AND GAS RESERVES AND OTHER OIL AND
GAS INFORMATION


4-10









12.   NON-GAAP MEASURES


DISCLOSURE OF CASH FLOW FROM OPERATIONS


non-cash


|         |                                            |              |   |       |      |  |   |       |   |  |   |       |  
|-------- | ------------------------------------------ | ------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|         |                                            | 2005         |   |       | 2004 |  |   | 2003  |  
|         |                                            |              |   |       |      |  |   |       |  
|         |                                            | ($ millions) |  
|Non-GAAP |                                            |              |   |       |      |  |   |       |   |  |   |      
|         | Cash flow from operations                  |              | $ | 3,785 |      |  | $ | 2,197 |   |  | $ | 2,430 |  
|         | Settlement of asset retirement obligations |              |   | (41   | )    |  |   | (40   | ) |  |   | (34   | )
|         | Change in non-cash working capital         |              |   | (72   | )    |  |   | 169   |   |  |   | 113   |  
|         |                                            |              |   |       |      |  |   |       |  
|GAAP     |                                            |              |   |       |      |  |   |       |   |  |   |      
|         | Cash flow  operating activities           |              | $ | 3,672 |      |  | $ | 2,326 |   |  | $ | 2,509 |  
|         |                                            |              |   |       |      |  |   |       |  

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13.   EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES






PUBLIC SECURITIES FILINGS


40-F,


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##### Table of Contents



EXHIBIT INDEX


|            |      |  |             |                                                                                                                                                                                                            
|----------- | ---- |  | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |      |  | Description
|            |      |  |            
|            | 23.1 |  |             | Consent of KPMG LLP, independent accountants.                                                                                                                                                              
|           
|            | 23.2 |  |             | Consent of McDaniel and Associates Consultants Ltd., independent
    engineers.                                                                                                                            
|           
|            | 31.1 |  |             | Certification of Chief Executive Officer and Acting Chief
    Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of
    the Securities Exchange Act of 1934.                                           
|           
|            | 32.1 |  |             | Certification of Chief Executive Officer and Acting Chief
    Financial Officer pursuant to Rule 13(a)-14(b) and
    Section 1350 of Chapter 63 of Title 18 of the United
    States Code (18 U.S.C. 1350).